Deluxe Corporation

Transfer Pricing Master File

For the Year Ended December 31, 2018

Glossary of Terms and Abbreviations

1.   Introduction

1.1   Purpose

1.2   Report Contents

1.3   Summary of Results

1.4   Limitations

2.   Company Overview

2.1   Organizational Structure

2.2   Business Segments and Product Overview

2.3   Entities Relevant to the Company’s Intercompany Transactions

3.   Industry Analysis

3.1   Commercial Printing Services

3.2   Buyer Power

3.3   Supplier Power

3.4   New Entrants

3.5   Substitutes

3.6   Rivalry

3.7   Key Success Factors

3.8   Conclusion

4.   Functional Analysis

4.1   Functions

4.2   Assets

4.3   Risks

5.   Benchmarking Data

5.1   North America Management and Back Office Services

5.2   North America Manufacturing

5.3   North America Marketing Services

5.4   North America Sales – Wholesale / Direct Marketing

5.5   North America Sales – Retail – Direct to Business

5.6   North America IT Services

6.   Appendices

Glossary of Terms and Abbreviations

Abbreviation

Expanded Term

Affiliates

Deluxe’s U.S. and foreign affiliates

BPCS

Business Process Control System

CAGR

Compound Annual Growth Rate

Canadian Legislation

Information Circular 87-2R on transfer pricing dated September 27, 1999

CBD

ChecksByDeluxe.com, LLC

CI

Customer Interface

CIQ

Standard & Poor’s Capital IQ Platform

Company

Deluxe Corporation

CP

Cost Plus

CPM

Comparable Profits Method

CPSM

Comparable Profit Split Method

CRA

Canada Revenue Agency

CSP

Cost of Services Plus

CUP

Comparable Uncontrolled Price

CUSP

Comparable Uncontrolled Services Price

DCULLC

Direct Checks Unlimited, LLC

DCUS

Direct Checks Unlimited Sales, Inc.

Deluxe

Deluxe Corporation

Deluxe Affiliates

Deluxe’s U.S. and foreign affiliates

DEO

Deluxe Enterprise Operations, LLC

DFS

Deluxe Financial Services, LLC

DLX

Deluxe Corporation

DMO

Deluxe Manufacturing Operations, LLC

Documentation

Deluxe’s 2018 Transfer Pricing Documentation

DSBS

Deluxe Small Business Sales, Inc.

FNTS

First National Technology Solutions

Foreign Affiliates

Deluxe’s foreign entities relevant to the Documentation

FSS

Finance Shared Services

GSM

Gross Services Margin

HOST CAN

Hostopia Canada, Corp.

HOST IRE

Hostopia Ireland Limited

IQR

Interquartile Range

IRC

Internal Revenue Code

ITA

Income Tax Act (Canada)

Local Files

Reports that define and describe certain specific material transactions of local Deluxe entities

Master File

Report containing standardized information relevant to all Deluxe corporate group members

NEBS LTD

NEBS Business Products Limited

OECD Guidelines

Organization for Economic Co-operation and Development Transfer Pricing Guidelines

OM

Operating Margin

PSM

Profit Split Method

Revenue Canada

Canada Revenue Agency

ROCE

Return on Capital Employed

ROTC

Return on Total Costs

RPM

Resale Price Method

RPSM

Residual Profit Split Method

SCM

Services Cost Method

SGACQ

Safeguard Acquisitions, Inc.

SGINC

Safeguard Business Systems, Inc.

SGLTD

Safeguard Business Systems Limited

SIC

Standard Industrial Classification

TNMM

Transactional Net Margin Method

U.S. Affiliates

Deluxe’s U.S. entities relevant to the Documentation

U.S. Regulations

IRC § 482, Treas. Reg. § 1.482-1 et seq. and Treas. Reg. § 1.6662-6

WFS

Wausau Financial Systems, Inc.

Transportal

Transportal

1. Introduction

Deluxe Corporation ("Deluxe" or the "Company") engaged Transportal to develop transfer pricing documentation for the year ended December 31, 2018. This report (“Master File”) contains standardized information relevant to all Deluxe corporate group members. The Master File complements the Company’s local files (“Local Files”) that define and describe certain specific material transactions of the local Company entities. Together, the Master File and Local Files constitute Deluxe’s 2018 Transfer Pricing Documentation (“Documentation”).

1.1 Purpose

The purpose of the Documentation is to establish whether the transfer pricing applied in certain controlled transactions engaged in by entities within the Deluxe Group is arm’s length. Our analysis accords with the U.S. Internal Revenue Code (“IRC”) § 482, Treas. Reg. § 1.482-1 et seq. and Treas. Reg. § 1.6662-6 (“U.S. Regulations”) and the Organization for Economic Co-operation and Development Transfer Pricing Guidelines (“OECD Guidelines”). Our analysis is also consistent with the Canadian income tax laws and administrative procedures on transfer pricing under Section 247 of the Income Tax Act and the Canada Revenue Agency’s (“CRA”) Information Circular 87-2R on transfer pricing dated September 27, 1999 (“Canadian Legislation”).

The table below lists the U.S. entities (“U.S. Affiliates”) relevant to the Documentation:

No.

U.S. Entities

Entity Abbreviation

1

Deluxe Corporation

DLX

2

Deluxe Enterprise Operations, LLC

DEO

3

Deluxe Manufacturing Operations, LLC

DMO

4

Direct Checks Unlimited, LLC

DCULLC

5

Deluxe Financial Services, LLC

DFS

6

Deluxe Small Business Sales, Inc.

DSBS

7

Direct Checks Unlimited Sales, Inc.

DCUS

8

ChecksByDeluxe.com, LLC

CBD

9

Safeguard Acquisitions, Inc.

SGACQ

10

Safeguard Business Systems, Inc.

SGINC

11

Wausau Financial Systems, Inc.

WFS

The table below lists the foreign entities (“Foreign Affiliates”) relevant to the Documentation:

No.

Foreign Entities

Entity Abbreviation

Country

13

Hostopia Canada, Corp.

HOST CAN

Canada

14

Hostopia Ireland Limited

HOST IRE

Ireland

15

NEBS Business Products Limited

NEBS LTD

Canada

10

Safeguard Business Systems Limited

SGLTD

Canada

Together, the U.S. Affiliates and Foreign Affiliates are hereafter referred to as “Deluxe Affiliates” or “Affiliates.”

The Company’s intercompany transactions covered in its documentation are the:

1. Provision of management services from DLX to the Deluxe Affiliates;

2. Provision of management services from DEO to the Deluxe Affiliates;

3. Sale of labels and related products from DCULLC to DEO;

4. Sale of paper products from DMO to DEO and SGINC;

5. Sale of paper products from DEO to DCUS (mail order - direct to consumer);

6. Sale of paper products from DCUS to CBD (mail order - direct to consumer);

7. Sale of paper products from DEO to DFS (wholesale and direct marketing sale within the U.S.);

8. Sale of paper products from DEO to DSBS (direct to business / services businesses within the U.S.), and

9. Provision of IT services by HOST CAN to DSBS.

According to the U.S. Regulations, the OECD Guidelines and the Canadian Legislation, transactions between controlled parties must be priced on an “arm’s length” basis, or as if the related enterprises were dealing with each other as independent or unrelated parties. Under the U.S. Regulations, a controlled transaction meets the arm's length standard “…if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances (arm's length result).”

Under the OECD Guidelines, the authoritative statement of the arm’s length principle is provided in paragraph 1 of Article 9 of the OECD Model Tax Convention, which forms the basis of bilateral tax treaties involving OECD member countries and an increasing number of non-member countries.

Article 9 provides:

[Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

1.2 Report Contents

In accordance with the Master File contents recommended by Action 13 of the Base Erosion and Profit Shifting Initiative, this Master File report contains the following information:

Section 2 reviews the Company’s business and products, including its legal structure, important drivers of profit;

Section 3 provides an industry analysis;

Section 4 provides a functional analysis;

Section 5 presents our search for and analysis of comparable data relevant to the Company’s intercompany transactions; and

Section 6 contains relevant appendices.

1.3 Summary of Results

TRANSPORTAL conducted benchmarking searches to benchmark the Company’s intercompany transactions. These benchmarking studies are detailed in this Master File. The following paragraphs summarize these benchmarking studies. The Local Files utilize this data to apply the selected transfer pricing methods.

1. North American Management and Back Office Services

TRANSPORTAL identified 15 comparable management and back office service providers. We calculated the return on total costs (“ROTC”) for the most recent three years of available data for these companies and applied a weighted average. We then calculated the interquartile range (“IQR”) of the ROTCs. Benchmark management and back office service providers generated a three-year weighted average ROTC IQR extending from 4.4 to 9.2 percent, with a 6.4 percent median.

2. North American Contract Manufacturing

TRANSPORTAL identified seven comparable manufacturing companies. We calculated the ROTCs for the most recent three years of available data for these companies and applied a weighted average. We then calculated the IQR of the ROTCs. Benchmark manufacturing companies generated a three-year weighted average ROTC IQR extending from 3.8 to 14.0 percent, with a 6.4 percent median.

3. North American Marketing Services

TRANSPORTAL identified six comparable marketing service providers. We calculated the ROTCs for the most recent three years of available data for these companies and applied a weighted average. We then calculated the IQR of the ROTCs to remove outliers. Benchmark marketing service providers generated a three-year weighted average ROTC IQR extending from -2.3 to 9.7 percent, with a 5.4 percent median.

4. North American Sale – Wholesale/Direct Marketing

TRANSPORTAL identified sixteen comparable wholesale/direct marketing companies. We calculated the operating margin (“OM”) for the most recent three years of available data for these companies and applied a weighted average. We then calculated the IQR of the OMs. Benchmark wholesale/direct marketing companies generated a three-year weighted average OM IQR extending from 1.5 to 6.2 percent, with a 2.4 percent median.

5. North American Sales – Retail/Direct to Business

TRANSPORTAL identified nine comparable retail/direct to business companies. We calculated the OM for the most recent three years of available data for these companies and applied a weighted average. We then calculated the IQR of the OMs. Benchmark retail/direct to business companies generated a three-year weighted average OM IQR extending from 1.4 to 3.9 percent, with a 3.1 percent median.

6. North American IT Services

TRANSPORTAL identified eight comparable IT service providers. We calculated the ROTC for the most recent three years of available data for these companies and applied a weighted average. We then calculated the IQR of the ROTCs to remove outliers. Benchmark IT service providers generated a three-year weighted average ROTC IQR extending from 4.3 to 15.0 percent, with a 6.3 percent median.

The table below provides a summary of the results of the benchmarking studies:

PLI

LQ

Median

UQ

1. Management and Back Office

ROTC

4.4%

6.4%

9.2%

2. Manufacturing

ROTC

3.8%

6.4%

14.0%

3. Marketing

ROTC

-2.3%

5.4%

9.7%

4. Wholesale/Direct Marketing

OM

1.5%

2.4%

6.2%

5. Retail/Direct to Business

OM

1.4%

3.1%

3.9%

6. IT Services

ROTC

4.3%

6.3%

15.0%

1.4 Limitations

In accordance with TRANSPORTAL’s agreement with Deluxe, this report is limited to issues concerning transfer pricing compliance with the Regulations for the Company’s intercompany transactions. The IRC and U.S. Regulations require that transfer prices within a controlled group be “consistent with the results that would have been realized if uncontrolled parties had engaged in the same transaction under the same circumstances (arm’s length result).”

This report does not address any additional tax issues that may exist or may arise outside this report's limited scope. Additional issues may exist that could affect the U.S. tax treatment of the Company’s intercompany transactions; this report does not consider or provide a conclusion with respect to any additional issues. This report is not intended for any other purpose, is not intended for any other person, and is not intended for any other entities. This report may not be utilized by Deluxe, by any person, or by any entity to promote, market, or recommend any tax related matter herein.

TRANSPORTAL provides this report solely with respect to the Company’s intercompany transactions. This report is intended to assist the Company in gathering certain information for transfer pricing documentation purposes in compliance with IRC § 6662(e) and implementing regulations Treas. Reg. § 1.6662-6. Please note that TRANSPORTAL does not warrant that the Company’s transfer pricing policies will withstand Internal Revenue Service (“IRS”) scrutiny. Should the IRS impose a transfer pricing related adjustment, we provide no guarantee that the Company will avoid an adjustment or related interest or penalty costs.

The Company has made representations and provided facts pertinent to this analysis to TRANSPORTAL. In this regard, the Company has affirmed the completeness and accuracy of such pertinent representations and facts. TRANSPORTAL has not independently verified the completeness and accuracy of such representations and facts, and TRANSPORTAL will not independently verify the completeness and accuracy of such representations and facts. Should the Company discover that any such representations and facts are not entirely complete or accurate, it is imperative that the Company inform TRANSPORTAL immediately in writing, as any such incompleteness or inaccuracy could cause changes to the conclusions presented herein.

TRANSPORTAL has not examined all the documents necessary to execute the Company’s intercompany transactions. TRANSPORTAL assumes that the Company has taken all necessary steps to execute the Company’s intercompany transactions as required by applicable federal, state, or local law. TRANSPORTAL believes that the conclusions in this report are consistent with the relevant provisions of IRC § 482 and the regulations thereunder, and the judicial and administrative interpretations thereof. However, there can be no guarantee that tax authorities will agree. The above authorities are subject to change, retroactively or prospectively, and any such change could affect the validity of the conclusions presented herein. Unless specifically engaged, TRANSPORTAL will not update the advice rendered in this report to reflect subsequent changes or modifications to the relevant laws and regulations or to reflect the judicial and administrative interpretations thereof.

2. Company Overview

Deluxe provides checks, forms, marketing solutions, accessories, and other products and services for small businesses and financial institutions. The Company’s principal executive office is in Shoreview, Minnesota. Aside from small sales offices, Deluxe occupies 70 facilities throughout the United States, seven facilities in Canada, two facilities in Europe and two facilities in Australia where Deluxe conducts printing and fulfillment, call center, data center and administrative functions. Approximately 15 percent of these facilities are owned and 85 percent are leased. These facilities have a combined floor space of approximately 3.0 million square feet.

2.1 Organizational Structure

Organizational charts reflecting the Company’s relevant entities and countries of domicile for 2018 are shown in Section A below.

2.1.1 U.S. Entities

2.1.2 International Entities

2.2 Business Segments and Product Overview

The Company operates through three business segments: Small Business Services, Financial Services and Direct Checks. All three segments offer products and services that help small businesses and financial institutions promote their businesses and acquire customers. The table below displays revenue and operating income by business segment for the years ended December 31, 2018, 2017 and 2016.

Revenue and Operating Income
(External Customers)
(thousands of USD)

Reportable Business Segments

Small Business Services

Financial Services

Direct Checks

Consolidated

Revenue

2018

1,283,620

586,967

127,438

1,998,025

Revenue

2017

1,239,739

585,275

140,542

1,965,556

Revenue

2016

1,195,743

499,976

153,343

1,849,062

Operating profit

2018

119,808

69,939

41,474

231,221

Operating profit

2017

181,528

101,047

46,601

329,176

Operating profit

2016

207,581

106,335

52,971

366,887

Deluxe is one of the largest suppliers of checks in the United States, both in terms of revenue and the number of checks produced. As shown in the table below, revenues for checks have steadily declined, while marketing solutions and other services revenues have steadily increased. In 2018, marketing solutions and other services revenues surpassed revenues for checks. Forms, accessories, and other products revenues have remained relatively flat.

Products and Services

(thousands of USD)

2018

2017

2016

Marketing solutions and other services

839,900

755,678

616,917

Checks

810,389

851,036

865,285

Forms, accessories, and other products

347,736

358,842

366,860

Total revenue

1,998,025

1,965,556

1,849,062

2.2.1 Small Business Services

The Small Business Services segment is the Company’s largest segment in terms of revenue and operating profit. Small Business Services operates under various brands including Deluxe®, Safeguard®, PsPrint®, Hostopia®, VerticalResponse®, Digital Pacific®, Inkhead®, LogoMix®, ColoCrossing®, and MyCorporation®, among others. This segment sells products and services to small businesses in North America, Australia, and portions of South America and Europe. The Company positions itself as a business partner who can provide many of the key elements needed to operate and promote small businesses, so the owners can focus instead on other aspects of their operations.

2.2.1.1 Products

Small Business Services offers products designed to provide small business owners with the customized documents to efficiently manage their business. Revenue from the sale of printed business forms comprises the largest proportion of the Small Business Services segment product revenue. Printed business forms include items such as deposit tickets, billing forms, work orders, job proposals, purchase orders, invoices, and personnel forms. This segment also offers computer forms compatible with accounting software packages commonly used by small businesses. Accessories and other products include promotional products, postcards, brochures, retail packaging supplies, apparel, greeting cards and business cards, envelopes, office supplies, stamps, and labels.

2.2.1.2 Services

The Small Business Services segment’s service offerings include web design, hosting and other web services; search engine optimization; marketing services, including email, mobile, social media and other self-service marketing solutions; digital printing services; logo design; fraud protection and security; and payroll services.

2.2.1.3 Distribution Channels

Small Business Services products are distributed through multiple channels. Primary sales channels include direct response mail and internet advertising; referrals from financial institutions, telecommunications clients and other partners; affiliate relationships; networks of distributors and independent dealers; a direct sales force that focuses on selling to and through major accounts; and an outbound telemarketing group. Customer service for initial order support, product reorders and routine service is provided by a network of call center representatives located throughout the United States, Canada, and Australia.

The Company is making efforts to simplify processes, eliminate complexity and lower costs in all its business segments. Small Business Services outsources the production of some of its products, including certain business forms, promotional products and apparel. The Company relies on strategic supplier sourcing arrangements and has been able to reduce the number of production facilities it owns by developing expertise in logistics, productivity and inventory management.

2.2.2 Financial Services

The Financial Services segment is the Company’s second largest segment in terms of revenue and operating profit. The Company expects that the suite of products and services offered by the Financial Service segment will offset the impacts of a decline in check usage. The Company is accelerating the pace of new product and service introduction and has invested in extending the Deluxe brand to increase brand awareness and loyalty in the financial services market beyond check-related solutions.

2.2.2.1 Products

The Financial Services segment sells personal and business checks and check related products such as stored value gift cards. Deluxe serves approximately 4,600 financial institutions in the United States. Consumers and small businesses typically submit their check orders to their financial institutions, which then forward the orders to Deluxe. Deluxe processes the orders and ships check directly to the consumers or small businesses. Financial Services produces a wide range of check designs, including licensed or cause-related designs such as Checks Unlimited®, Designer Checks®, Checks.com®, Check Gallery®, The Styles Check Company®, and Artistic Checks, among others. The Financial Services segment also sells deposit tickets, check registers, checkbook covers and stamps.

2.2.2.2 Services

The suite of services offered by the Financial Services segment are designed to help financial institutions operate more effectively and better address the needs of their customers throughout the customer life cycle. Service offerings include marketing communications services, rewards and loyalty programs, fraud monitoring and protection services for financial institution customers, financial institution profitability and risk management services, and a suite of financial technology solutions that customizes reporting, integrates receivables, accelerates deposits and payments and eliminates paper. Service offerings include:

Deluxe Marketing Solutions – direct marketing solutions that help financial institutions acquire new customers, deepen existing customer relationships and retain customers. These offerings leverage data and analytics to help clients execute marketing campaigns across multiple contact channels, including direct mail, email, online and other digital media;

Deluxe Treasury Management– comprehensive treasury management solutions, including accounts receivable processing and remote deposit capture, available at the customer site and as software-as-a-service and business process outsourced deployment models;

Deluxe Rewards® – a loyalty rewards program that offers multiple touch points that enable our clients to have ongoing engagement with their customers;

Deluxe Strategic Sourcing – a comprehensive outsourced service that enables financial institutions to improve efficiency, financial controls, and pricing compared to self-managing multiple supplier relationships;

Banker's Dashboard® – online financial management tools that provide financial institutions with comprehensive daily insights into their financial picture; and

Provent ® – a comprehensive suite of identity protection services largely complementary to the Company’s check offerings.

2.2.2.3 Distribution Channels

The Financial Services segment’s products and services are sold primarily through a direct sales force, which executes product and service supply contracts with U.S. financial institution clients including banks, credit unions and financial services companies. The Financial Services segment is expanding into sales of software- and cloud-based products and services designed to help financial institutions better address the needs of their customers throughout the customer lifecycle. Certain service offerings are sold to clients other than financial institutions.

Check supply contracts usually range in duration from three to six years. The segment provides enhanced services such as customized reporting, file management, expedited account conversion support, fraud protection services, new account support, trackable delivery and billing services. The Company also leverages the Deluxe Business Advantage program, which is designed to maximize financial institution business check programs. It offers many of the products and services of the Small Business Services segment to the small business customers of financial institutions through several service level options. The revenue from the products and services sold through this program is reflected in Small Business Services segment results.

2.2.3 Direct Checks

Direct Checks is the nation's leading direct-to-consumer check supplier, providing products and services to more than 4.7 million consumers in the past 24 months. These checks are sold under various brand names, including Checks Unlimited®, Designer Checks®, Checks.com®, Check Gallery®, The Styles Check Company®, and Artistic Checks®. The Company uses a variety of direct marketing techniques to acquire new customers, including newspaper inserts, in-package advertising, statement stuffers, co-op advertising and search engine marketing and search engine optimization strategies to direct traffic to Deluxe websites which include checksunlimited.com, designerchecks.com, checks.com, checkgallery.com, styleschecks.com, and artisticchecks.com.

Direct Checks competes primarily on price and design and believes that pricing in the direct-to-consumer channel is generally lower than retail prices charged to consumers in the financial institution channel. The Company competes on design by offering a selection of images with high consumer appeal, many of which are licensed from well-known artists and organizations.

Other products sold by the Direct Checks segment include deposit tickets, check registers, checkbook covers, and stamps.

2.2.3.1 Services

The Direct Checks segment provides fraud protection and security services, as well as package insert programs under which marketing materials are included in the Company’s check packages. The Company is focused on increasing sales to existing customers. Efforts include the check protection service offered in partnership with EZShield, Inc., which provides reimbursement to consumers for losses resulting from forged signatures or endorsements and altered checks.

2.2.3.2 Distribution Channels

Deluxe sells personal and business checks and related products and services directly to consumers using direct response marketing and the Internet. Deluxe estimates the direct-to consumer personal check-printing portion of the payments industry accounts for approximately 12 percent of all personal checks sold in the United States.

2.3 Entities Relevant to the Company’s Intercompany Transactions

The table below lists the Company’s entities relevant to the Company’s intercompany transactions:

No.

Entity

Entity Abbreviation

Country

1

Deluxe Corporation

DLX

USA

2

Deluxe Enterprise Operations, LLC

DEO

USA

3

Deluxe Manufacturing Operations, LLC

DMO

USA

4

Direct Checks Unlimited, LLC

DCULLC

USA

5

Deluxe Financial Services, LLC

DFS

USA

6

Deluxe Small Business Sales, Inc.

DSBS

USA

7

Direct Checks Unlimited Sales, Inc.

DCUS

USA

8

ChecksByDeluxe.com, LLC

CBD

USA

9

Safeguard Acquisitions, Inc.

SGACQ

USA

10

Safeguard Business Systems, Inc.

SGINC

USA

11

Wausau Financial Systems, Inc.

WFS

USA

12

Hostopia Canada, Corp.

HOST CAN

Canada

13

Hostopia Ireland Limited

HOST IRE

Ireland

14

NEBS Business Products Limited

NEBS LTD

Canada

15

Safeguard Business Systems Limited

SGLTD

Canada

2.3.1 Deluxe Corporation (DLX)

Deluxe Corporation is the parent company, providing administrative services to other members of the Deluxe group. DLX is responsible for executive management, corporate development, strategic marketing, supply management and vendor relations, information technology, accounting/finance, human resources/payroll, tax, treasury, legal and other management services.

2.3.2 Deluxe Enterprise Operations, LLC (DEO)

Deluxe Enterprise Operations, LLC is an administrative service provider to other members of the Deluxe group. DEO is responsible for general management, strategic marketing, supply management and vendor relations, information technology, accounting/finance, human resources/payroll, other management services, and intangible property (“IP”).

2.3.3 Deluxe Manufacturing Operations, LLC (DMO)

Deluxe Manufacturing Operations, LLC performs and coordinates manufacturing functions for Deluxe, including production scheduling and planning, design engineering, technical training, and other functions related to the manufacturing process. DMO sells its products to DEO and SGINC. DMO operates several facilities, including distribution centers, warehouses, and order fulfillment plants. Plants are located throughout the U.S., including California, Illinois, Kansas, New Jersey, Ohio, Utah, Missouri, Georgia and Massachusetts.

2.3.4 Direct Checks Unlimited, LLC (DCULLC)

Direct Checks Unlimited, LLC performs and coordinates manufacturing functions for Deluxe, including production scheduling and planning, design engineering, technical training, and other functions related to the manufacturing process. DCULLC sells its products to DEO. DCULLC operates manufacturing facilities in Kansas and Utah.

2.3.5 Deluxe Financial Services, LLC (DFS)

Deluxe Financial Services, LLC sells personal and business checks, check-related products and services, customer loyalty, retention and fraud monitoring and protection services, and stored value gift cards to financial institution customers. As part of check programs, DFS also offers enhanced services such as customized reporting, file management and expedited account conversion support. DFS serves approximately 6,000 financial institutions in the United States. Consumers and small businesses typically submit their check orders to their financial institution, which then forward the orders to DFS. DFS processes the orders and ships them directly to the consumers or small businesses. DFS produces a wide range of check designs, with many consumers preferring one of the dozens of licensed or cause-related designs Deluxe offers.

2.3.6 Deluxe Small Business Sales, Inc. (DSBS)

Deluxe Small Business Sales, Inc. operates under various brands including Deluxe®, NEBS®, McBee®, Stephen Fossler, PsPrint®, Logo Mojo®, Aplus.net SM and MerchEngines.com SM . DSBS provides personalized products and services that help small business customers operate, protect and grow their businesses. DSBS sells personalized printed product, which include business checks, printed forms, promotional products, marketing materials and related services, as well as retail packaging supplies and a suite of business services, including web design and hosting, fraud prevention, payroll, logo design, search engine marketing and business networking. Printed forms include billing forms, work orders, job proposals, purchase orders, invoices and personnel forms. DSBS also sells computer forms compatible with accounting software packages commonly used by small businesses.

The majority of DSBS products are distributed through more than one channel. Primary channels include direct mail, in which promotional advertising is delivered by mail to small businesses, referrals from financial institutions and telecommunication companies, and internet marketing. These efforts are supplemented by the account development efforts of an outbound telemarketing group. DSBS also sells through websites. DSBS has been shifting a portion of its advertising efforts to the internet as customers are increasingly using the internet to procure products and services. Customer service for initial order support, product reorders and routine service is provided by a network of call center representatives located throughout the United States.

DSBS has also expanded its marketing solutions and other services offerings to include technology-based solutions such as web service, web-to-print capabilities, internet marketing services and electronic checks. These marketing and other services account for approximately 12.5 percent of DSBS revenues.

Principal among these service offerings are the web-hosting services under the Hostopia® brand, where proprietary technology is used by smaller businesses to take a SaaS approach to launching a website, while larger businesses can leverage scalable advanced hosting features.

The VerticalResponse® portion of the DSBS business provides self-service marketing solutions for small businesses, including e-mail marketing, social media, on-line event marketing, postcard marketing and on-line surveys.

OrangeSoda® is the other major component of the DSBS marketing and other service offerings, providing internet marketing services such as search, mobile and social media campaign strategies.

2.3.7 Direct Checks Unlimited Sales, Inc. (DCUS)

Direct Checks Unlimited Sales, Inc. is the nation's leading direct-to-consumer check supplier, selling under various brand names including Checks Unlimited®, Designer® Checks, and Checks.com. Through these brands, DCUS sells personal and business checks and related products and services directly to consumers using direct response marketing and the Internet. DCUS estimates the direct-to-consumer personal check printing portion of the payments industry accounts for approximately 12 percent of all personal checks sold in the United States. DCUS uses a variety of direct marketing techniques to acquire new customers, including newspaper inserts, in-package advertising, statement stuffers and co-op advertising. DCUS also uses e-commerce strategies to direct traffic to their websites, which include checksunlimited.com, designerchecks.com, and checks.com.

2.3.8 ChecksbyDeluxe.com LLC (CBD)

ChecksByDeluxe.com, LLC sells checks directly to the consumer through the internet for DCUS. CBD’s customers include non-financial institutions. Orders are manufactured by DCULLC or DMO and shipped directly to the customer.

2.3.9 Safeguard Acquisitions, Inc. (SGACQ)

Safeguard Acquisitions, Inc. is a corporate development company that operates various company-owned distributors. These distributors offer products and services for small business customers ranging from printed forms, brochures, checks, promotional items, apparel and other business services. The company is based in Dallas, Texas.

2.3.10 Safeguard Business Systems, Inc. (SGINC)

Safeguard Business Systems, Inc. operates as a distributor and marketing entity in the U.S. SGINC sells business checks, tax forms, stationery, holiday cards, file systems, and other office commodity products. SGINC sells these products to small business customers, which generally have ten employees or less. Products are sold through a network of independent distributors that market products under the Safeguard brand name and Tommy Trojan trademark. The headquarters of the company is in Dallas, Texas, with administrative offices in Lansdale, Pennsylvania.

2.3.11 Safeguard Business Systems, Ltd. (SGLTD)

Safeguard Business Systems, Ltd. operates in Canada as a manufacturer and distributor of small business-oriented products such as business checks, tax forms, stationery, holiday cards, file systems, and other office commodity products.

2.3.12 Wausau Financial Systems, Inc. (WFS)

Wausau Financial Systems, Inc. provides financial technology services and solutions to financial institutions, healthcare and insurance companies, distribution and property management companies, utilities, government agencies, insurers, banks, and telecommunications companies. It offers Optima3 IMS, an enterprise content management solution that includes Accounts Payable Automation solution to streamline and simplify accounts payable processes; Human Resource Automation solution to streamline employee administration; Loan Automation solution to centralize and simplify internal and external processes of originating and managing loans; and New Account Automation solution to complete new-account transactions securely. The company also offers image and item processing products, including Deposit Processing solution to transform deposits into transactions for posting, electronic clearing, and archiving; Exception Processing solution for deposit processing; Returns Processing solution to automate returns using imaging and business rules; and products that digitize and integrate archive, analytics, and workflow monitoring in a single process. In addition, it provides remittance products, such as receivables management for corporations, retail and wholesale lockbox, and online billing solutions; and remote capture products, such as branch, remote deposit, remittance payment, and teller line capture solutions. Further, it provides receivables management solutions, lockbox outsourcing services, infrastructure consulting services, and support and education services. It sells scanner, check processing, and paperless branch equipment and supplies online. The company is based in Wausau, Wisconsin and has operated as a subsidiary of Deluxe Corp. since October 22, 2014.

2.3.13 Hostopia Canada, Corp. (HOST CAN)

Hostopia Canada, Corp. is a provider of Web services that enable small and medium-sized businesses to establish and maintain an Internet presence. HOST CAN’s customers are communication services providers, including telecommunication carriers, cable companies, Internet service providers, domain registrars, web hosting service providers, as well as small businesses. HOST CAN provides customers with the technology, infrastructure and support services to enable them to offer Web services and have Web presence, while saving them research and development and capital and operating costs typically associated with the design, development and delivery of Web services.

HOST CAN currently co-locates in four data centers with high levels of security, power and connectivity redundancy. HOST CAN operates in these facilities under service agreements that range from one to three years. HOST CAN leases space in Toronto, Canada in which it operates a data center facility located.

2.3.14 Hostopia Ireland, Ltd. (HOST IRE)

Hostopia Ireland, Ltd., located in Dublin provides comprehensive data hosting services and managed high-speed Internet connectivity for the Hostopia business platform.

2.3.15 NEBS Business Products, Ltd. (NEBS LTD)

NEBS Business Products, Ltd. designs, manufactures, and distributes personalized business products for small businesses in Canada. It offers various solutions to start a business, such as online incorporations, business name registrations, logo designs, business cards, domain name registrations, and email services; and products and services to manage a business, such as checks and deposit slips, forms, envelopes, office and retail supplies, labels, retail packaging, bags and bows, payroll and human resource services, and email and collaboration tools. It also provides solutions to enhance growth in a business, such as email marketing campaigns, Website hosting and design services, marketing and promotional products, gift certificates, occasion cards, holiday cards and calendars, stationery and business cards, color printing services, and promotional clothing. It serves the automotive, contract, hospitality, manufacturing and wholesale, retailing, and professional services industries. The company is based in Midland, Canada.

3. Industry Analysis

Deluxe operates primarily as part of the commercial printing industry in that it has historically generated a significant portion of its revenue from the sale of checks and business forms. These products continue to encompass over half of the Company’s total yearly revenue.

The printing of checks and business forms has been experiencing a major decline in the compound annual growth rate (“CAGR”) since 2000 as consumers are using alternative methods of payment than checks as well as shifting away from the use of preprinted business forms. From 2000 to 2012, the CAGR for checks paid was negative 6.6 percent, negative 3.0 percent from 2012 – 2015, negative 3.6 percent from 2015-2016, and negative 4.8 percent from 2016 to 2017. According to the most recent Federal Reserve study, released in January 2019, debit card, credit card and ACH payments all exceeded the number of checks written in 2015. Approximately 19.4 billion checks were written in 2015, accounting for approximately 13 percent of all non-cash payment transactions. This is a reduction from the Federal Reserve Study released in December 2013 when checks accounted for approximately 17 percent of all non-cash payment transactions.

3.1 Commercial Printing Services

This section provides an overview of buyer power, supplier power, substitutes, and competition (new entrants and current rivals) in the commercial printing industry.

3.2 Buyer Power

The commercial printing services market has many buyers including direct to consumers (generally any person with a bank account), small businesses, and financial institutions. Competition in the industry is fierce as there are low barriers to entry. Competitive factors include product line, delivery speed, quality, price, convenience, customer service and experience.

An increase in alternative methods of payment have had a significant effect on the decline in usage of checks by direct consumers, financial institutions, and small businesses alike. Alternative payment methods include credit cards, debit cards, direct deposit, wire transfers, internet-based bill paying services, and digital wallet applications. The increase in mergers among financial institutions has given buyers of direct checks an increased advantage as it gives banks the opportunity to renegotiate long term contracts (most contracts are for three to six years) to create more favorable terms (generally in the form of overall pricing reduction and cash incentives) which places a significant pricing pressure on check printers. Additionally, electronic transaction systems, off-the-shelf business software applications, web-based solutions, and mobile applications have been designed to replace pre-printed business forms. Greater acceptance of electronic signatures also contributes to the overall decline in printed products. It is difficult to predict the pace at which these alternative products and services will achieve widespread acceptance and replace standardized business forms.

Availability of alternative suppliers for accessories and other printed products is great, which also creates downward pricing pressure on products in this category. Businesses and governments continue to replace printed forms and documents with electronic versions. Office products, including stationery, calendars, business forms, business cards, and more are all decreasing in demand due to the availability of online and desktop software versions for printing.

The large number of suppliers and the low barriers to entry for new suppliers increases the bargaining power of customers. Based on the factors above, buyer power in this industry is high.

3.3 Supplier Power

Production personnel in commercial printing plants include employees with special skills in operating complicated machines, and lower-paid, relatively unskilled workers. Average hourly wages are slightly lower than the national average. Fringe benefits are an additional 19 percent of wages. Although some printing jobs are directly concerned with presses, an increasing number are in prepress design and layout that make greater use of computer skills. The number of people employed in commercial printing has declined in the last decade, as more of the work has become automated.

With the decline in demand for commercial printing services, specifically in direct checks and business forms, there is an increase in the need for customer service and sales personnel to maintain current relationships. Larger suppliers are pursuing cost reduction strategies and business simplification initiatives including automation and consolidation of production facilities, streamlining customer service and internal shared services, eliminating redundancies, and strengthening the ability to deliver new products to the marketplace.

Due to the large number of suppliers and decreasing demand, supplier power in this industry is low.

3.4 New Entrants

The commercial printing industry generally features low to medium barriers to entry, as the basic printing processes are well-known and small-scale equipment is relatively inexpensive. There are many small firms in this industry and a low level of market share concentration, given that the top four companies in the industry account for less than 15.0 percent of revenue. Therefore, major companies exhibit little market power.

The industry has a relatively low level of industry regulation; in general, printing companies face the same environmental regulations that apply to most US manufacturers. Barriers to entry, however, vary by industry segment and are relatively higher in the more capital-intensive segments. One of the most significant barriers to entry is capital investment in offset printing presses. Firms in capital-intensive segments usually deal with large customers, often on long-term contracts, and have large print capacities that can cost-effectively provide long print-runs. Consolidation is occurring in most of these segments, indicating that economies of scale and scope are increasing.

Barriers are relatively low in some segments, such as quick and digital printing. Online printers are emerging as major competitors in the short print-run space, and online operators can build significant economies of scale. Improved digital printing and more sophisticated workflow software are promoting shorter, digitally printed runs, which can affect demand for long-run offset printing services. Digital printing has low setup costs and can accommodate shorter runs while reducing warehousing costs.

The low barriers to entry in this industry are offset by the low profitability. Therefore, the threat of new entrants in this industry is moderate.

3.5 Substitutes

Increasingly, purchasers are choosing alternative forms of payments to writing checks, which has a direct impact on the need for printed checks by end consumers, financial institutions, and small businesses alike. In addition, steps have been taken in the development of a real-time payments system in the United States. The Federal Reserve established the Faster Payments Task Force with the objective of identifying and evaluating approaches for implementing a faster payments system and is encouraging the private sector to create real-time payment solutions. I n late 2017, The Clearing House Payments Company, LLC implemented a clearing and settlement system allowing consumers and businesses to send and receive payments in real- time directly from their accounts at financial institutions. The National Automated Clearing House Association adopted Same-Day ACH rules to speed up the processing of ACH payments, and systems such as PayPal®, Zelle®, Venmo®, Apple Pay® and various other mobile applications allowing individuals to transfer funds to other users. In addition, cryptocurrencies have been gaining acceptance in the marketplace. The rate and the extent to which alternative payment methods will achieve acceptance and replace checks, whether because of legislative developments, changing payment systems, personal preference or otherwise, cannot be predicted with certainty.

Additionally, purchasers in all three segments have increased availability of substitutes and alternative means to enact and record business transactions and print and use business forms. This is a direct result of the continual technological improvements. Access to lower price and higher performance capabilities of personal computers, printers and mobile devices, as well as electronic transaction systems, off-the-shelf business software applications, web-based solutions and mobile applications provide consumers with alternative means to printing many pre-printed business forms. Greater acceptance of electronic signatures also contributes to the overall decline of printed products.

Customers in the industry are very open to new technologies that increase effectiveness and lower costs. This pressure will only increase over time. Accordingly, the threat of substitutes in this industry is high.

3.6 Rivalry

As discussed, the commercial printing industry is highly fragmented, with the four largest printing companies accounting for just 15.0 percent of the industry’s revenue. Commercial printers in the United States are for the most part privately owned and on average generate less than $2.0 million in annual sales. Although they account for a marginal 2.0 percent share of industry revenue, the industry’s low barriers to entry and improvements in printing technology have also encouraged the entrance of non-employers, who represent more than half of all industry operators. Even among the remainder of the industry, small businesses dominate, with more than 70 percent of employing establishments in the industry possessing a workforce of fewer than ten people.

Nevertheless, because of consolidation and the exit from the market of underperforming printing presses, the number of industry companies is expected to fall at an annualized rate of 1.1 percent over the five years to 2019. This industry is expected to continue consolidating due to overcapacity and the rapid pace of technological change and digital media adoption. Rising barriers to entry and increasingly strategic and complex relationships with customers will also contribute to industry consolidation over the next five years.

Specific to the small business forms, accessories and other products market, major competitors include office product superstores, local printers, business forms dealers, and internet-based suppliers. The industry is highly fragmented and geographically dispersed. The check printing industry also houses considerable competition from a multitude of check printers, check printing software vendors and alternative payment methods. Check printing specific to financial institutions has two major players, one of which is Deluxe, though both players are seeing a decline in demand tied to the reduction in usage of checks as a form of payment.

The high number of suppliers and low growth rate in the industry increases competitive pressures. Thus, the level of rivalry in this industry is high, and will likely become more intense over time.

3.7 Key Success Factors

The industry dynamics described above have given rise to the following critical success factors in the commercial printing industry. These include brand management, effective sourcing, manufacturing and supply chain excellence, and appropriate pricing. These critical success factors are described below.

3.7.1 Brand Management

As demand for printed checks and business forms has declined, the Company recognizes the importance of developing and maintaining its brand portfolio to maintain its current customers and attract new customers. The Company has been investing in brand loyalty and awareness not just for printing checks and business forms, but to generate future growth in its marketing and business services segments.

3.7.2 Effective Sourcing

The primary materials used to produce the Company’s main products are paper, plastics, ink, cartons and printing plate material, which are purchased from various sources. Deluxe has entered agreements with third-party providers for information technology services, including telecommunications, network server, and transaction processing services, as well as to provide a portion of the data used to maintain its proprietary and non-proprietary databases, including credit and non-credit data from the national credit bureaus and other data brokers. The Company can obtain alternative sources of supply if one or more of its service providers failed to perform.

3.7.3 Manufacturing and Supply Chain Management

As demand for checks and printed forms continues to decrease and rivalry remains high, players in the industry must effectively manage costs. Costs can be managed through sourcing and manufacturing and supply chain management. Consolidation of tasks and entities, as well as effective coordination of production tasks enable better management of costs and pricing efforts.

3.7.4 Appropriate Pricing

As is often the case when there is a decrease in demand, many consumers will base their purchasing decisions solely on price. Competitive pricing is an important driver in optimizing profitability and allowing the Company to continue to remain relevant in the industry.

3.8 Conclusion

The decline in demand for printed material has accelerated over the past fifteen years. Along with other players in the commercial printing industry, Deluxe has experienced a decline in demand for printed checks and forms. As a result, growing the marketing solutions and business services product groups is of importance to the Company.

4. Functional Analysis

A functional analysis is a method of finding and organizing facts about a business in terms of its functions, risks and assets to identify how these characteristics are divided between the controlled parties involved in the Company’s intercompany transactions. The functional analysis provides the factual foundation for selecting and applying the transfer pricing method. The functional analysis identifies the functions performed, risks assumed, and assets utilized by the Company and how they are divided among the controlled parties involved in the Subject Transactions.

For reference, the table below summarizes the primary Deluxe Affiliates, the related party entities they transact with, and the Subject Transactions applicable. The functions, assets and risks of these entities are detailed in sections 4.1, 4.2, and 4.3 below:

Entity

Subject Transaction Number

Transacts With

Deluxe Corporation (DLX)

1. Provision of services (management & back office services)

U.S. subsidiaries:

Deluxe Enterprise Operations LLC (DEO)

Deluxe Small Business Sales, Inc. (DSBS)

Deluxe Financial Services LLC (DFS)

Direct Checks Unlimited Sales, Inc. (DCU")

Deluxe Manufacturing Operations LLC. (DMO)

Direct Checks Unlimited LLC (DCULLC)

Wausau Financial Systems, Inc. (WFS)

Safeguard Business Systems, Inc. (SGINC)

Safeguard Acquisitions, Inc. (SGACQ)

Safeguard Business Systems Limited (SGLTD)

Canadian subsidiaries:

NEBS Business Products Limited (NEBS LTD)

Hostopia Canada Corp. (HOST CAN)

Irish subsidiary:

Hostopia Ireland Limited (HOST IRE)

DEO

2. Provisions of services

(management & back office services)

US subsidiaries:

DLX

DSBS

DFS

DCUS

DMO

DCULLC

WFS

SGINC

SGACQ

SGLTD

Canadian subsidiaries:

NEBS LTD

HOST CAN

Irish subsidiary:

HOST IRE

5. Tangible Goods (paper products)

DCUS

6. Tangible Goods
(paper products)

CBD

7. Services (marketing) and Tangible Goods (wholesale)

DFS

8. Services (IT and marketing) and Tangible Goods (retail)

DSBS

DCULLC

3. Tangible Goods

(labels and related products)

DEO

DMO

4. Tangible Goods

(paper products)

DEO

SGINC

HOST CAN

9. Services (IT)

DSBS

4.1 Functions

The Company’s key functions include management and back office, IT, engineering, procurement, logistics and manufacturing and sales and marketing. These functions are discussed below.

4.1.1 Corporate Development

Overall strategy development for Deluxe is performed by the Corporate Development group, at DLX. The Corporate Development group is responsible for strategic planning, coordinating merger and acquisition efforts, organizing special projects, and forecasting company and industry trends. Corporate Development sets the overall direction for the company's internal strategic planning processes and outlines reporting deliverables for the business segments. Strategic planning is performed annually for the subsequent three-years. Additionally, Corporate Development identifies possible acquisitions, venture partners, and investment opportunities and supports transaction execution (buying and selling side).

Corporate Development's forecasting responsibilities include generating and presenting economic-based check usage forecasts and macroeconomic models to support overall planning for the business. Additionally, the Corporate Development group communicates relevant information to the Deluxe Affiliates by tracking and passing along information about competitors, industry, and other research-driven information. Corporate Development maintains a great deal of contact with the Company's executives to assess opportunities and possible action plans.

4.1.2 Finance/Accounting/Credit

DEO houses a Finance Shared Services (“FSS”) group, which provides various finance and accounting services to the Deluxe Affiliates including the following programs: Procure to Pay, Order to Cash, and Accounting to Reporting.

Procure to Pay activities performed by DEO for the Deluxe Affiliates include:

Managing accounts payable,

Administration of the corporate credit card program, and

Processing vendor commissions.

The commissions group within Procure to Pay provides support to calculate commission payments using transactional invoice data, adjustment memos, financial requests, payback schedules, miscellaneous adjustments and correspondence with vendors and customers within the Financial Services segment. This group prepares backup documents for the monthly commission process, commission summaries, all expense documents, account rotation and commission transfer backup and detail.

Order to Cash activities performed by DEO for the Deluxe Affiliates include:

Performing billing and cash application processes and customer credit and collection support;

Responding to distributors via phone, email and fax regarding credit card and bank ACH information for payments to customer accounts;

Updating customer data in the Business Process Control System ("BPCS") operating system to flag for future collection efforts;

Completing customer account histories on excel spread sheets and emailing the information to customers/distributors;

Forwarding calls to specific finance department staff to answer questions; and

Providing customers with payment information from BPCS accounts receivable.

Accounting to Reporting provides accounting services to the Deluxe Affiliates, including:

Managing ERP and consolidations,

Fixed asset reporting, and

Specialized accounting services involving contract acquisition costs, environmental reserves and restructuring issues.

In addition to the activities performed by the FSS group, DEO provides financial planning, analysis, forecasting and management reporting to other Deluxe Affiliates. DEO performs its own accounting, finance and credit services.

4.1.3 Administrative and Back Office Services

DLX and DEO provide various management services to the Deluxe Affiliates, including accounting, finance, human resource management, payroll, tax and legal services.

The Accounting Services group provides accounting, finance and credit services to the Deluxe Affiliates. The Accounting Services group supports the business via credit, collections and billing. The Accounting Services group also supports distributors through commission processing, payment facilitation and other adjustments. Accounting Services group responds to distributors via phone, email and fax regarding credit card and bank ACH information for payments to customer accounts. The Accounting Services group updates customer's data in the Business Process Control System ("BPCS") operating system to flag for future collection efforts; complete customer account histories on excel spread sheets and email the information to customers/distributors; forward calls to specific Finance department staff to answer questions; and provide customer/distributor with payment information from BPCS accounts receivable.

The commissions group provides support to calculate and remit cash flow to distributors on the 15th of every month for the prior month's business activities. Commission payments are calculated using transactional invoice data, adjustment memos, financial requests, payback schedules, miscellaneous adjustments and correspondence with distributors. This group prepares backup documents for the monthly commission process, commission summaries, all expense documents, account rotation and commission transfer backup and detail. CDs are created each month containing copies of all Commission Reports sent to distributors. Also, information is prepared and documented containing year-end reports with detail, including copies of the annual 1099 for each distributorship.

DLX also performs treasury activities for the Deluxe Affiliates, including managing acquisitions, cash and risk management, investor relations and financing ongoing operations.

4.1.4 Information Technology

DLX and DEO perform provide infrastructure-related IT services to the Deluxe Affiliates. IT services consist of data center operations, application maintenance and development, and distributed computing. DEO has one data center that has been outsourced to a third-party, First National Technology Solutions (“FNTS”), where customer data is sent electronically to the Company’s proprietary Customer Interface (“CI”) system. This system performs fraud checks, organizes data, and sends information to Deluxe manufacturing plants (DMO and DCULLC) based on plant utilization, zip code, financial institution, etc.

Application maintenance and development is also outsourced by DEO to a third-party, TCS. Activities performed by TCS include maintaining the CI software, financial institution mainframe and desktop order entry, and developing software for the Company’s internet-based order entry system, such as DLXport. DEO also outsources to a third-party for personal computer helpdesk support and on-call technicians for the Deluxe Affiliates.

HOST CAN is responsible for developing and maintaining the online platform for small business customers through both existing and new software and hardware. Small businesses use these platforms to build and manage an effective online presence. This is critical to HOST CAN and DSBS’s success as it is believed that the scalability and flexibility of the platform provides a key competitive advantage over competitors.

Over 80 percent of the Hostopia program management team is employed by HOST CAN. These employees are responsible for aiding partners and customers in migrating sites from their existing platform onto the Hostopia platform. Without this competency, it would be extremely difficult for the group to be effective in the wholesale market space.

4.1.5 Marketing

DLX and DEO are responsible for strategic marketing functions within the Company. The goal of DEO's marketing initiatives is to increase customer numbers in all business segments, including financial institution and small business customers. Strategic marketing initiatives established by DEO are communicated to the Deluxe Affiliates performing the sales functions (CBD, DCUS, DFS, DSBS, and SGINC), where each Affiliate’s respective sales force implements them.

DLX and DEO spend considerable time on marketing, brand development and awareness, and loyalty programs. In 2014 and 2015, DEO launched new brand awareness and positioning initiatives, centered around the celebration of the 100-year anniversary of Deluxe as a company. DEO also spearheaded marketing efforts in 2015 to begin the migration of the various separate Deluxe brands to new brands under a common Deluxe master brand umbrella.

Additionally, DEO hosts collaboration events in which DEO, financial institution decision makers, industry leaders, and keynote speakers participate to discuss current trends and/or topics of importance (both negative and positive) in the marketplace, as well as customer loyalty and consumer marketing. The purpose of these programs is to increase the Company’s presence in the industry as a partner to its customers and to, assist in solving some of the key challenges facing the industry to enhance the Company’s long-term business prospects.

DLX and DEO also host Deluxe Exchange education events, which allows financial institution customers to sign-up for seminars that include keynote speakers, conferences, publications and access to the Company’s knowledge sharing database. Specific to financial institutions, the strategic goal is to increase the Company’s customer retention rates. For Deluxe, the program increases the Company’s brand awareness among participants.

DLX and DEO also provide services to help financial institutions retain existing customers by providing inserts for several product-centered offers in the boxes of checks sent from Deluxe to a financial institution’s end user, as well as advertising in business and trade magazines.

DSBS is responsible for marketing services in the U.S. market under the Hostopia brand.

4.1.6 Engineering

DLX houses the Fulfillment Support organization, which works with and for the Fulfillment Operations departments at DMO and DCULLC. There are three managed engineering groups within Fulfillment Support today –Engineering Services and Support, Lean Engineering, and Product Engineering.

Engineering Services and Support group identifies external equipment and systems for purchase, as well as continued development and support of proprietary and industry specific technology. This team consists of mechanical, electrical, manufacturing and print systems engineers that recommend purchases, develop designs, build, support, train, deploy and refurbish manufacturing floor equipment. This group interfaces with vendors, consultants, suppliers and internal IT organization to meet the project and ongoing needs of manufacturing operations.

Lean Engineering group is responsible for optimizing manufacturing workflow processes, standardization, minimizing waste and the cost of manufacturing through the training, migration and maintenance of lean manufacturing disciplines. Lean Engineers at each manufacturing site (DMO and DCULLC) create and lead the ongoing culture of continuous improvement and innovation. They utilize cross-functional internal and external teams and subject matter experts to review potential and current issues, identify opportunities and establish a path to standardized change across operations.

The Product Engineering group is the intermediary between sales and marketing operations and manufacturing operations. They share information on products, growth and changing market needs for Fulfillment and Fulfillment Support teams. Product Engineering also maintains and supports documentation of existing products for equipment maintenance, reporting and process changes.

Each engineering group may work independently or form cross functional teams to complete projects and accomplish the Company’s strategic goals.

4.1.7 Production Planning

DMO and DCULLC coordinate production planning and scheduling for their plants independently, with some input from the strategic marketing group of DEO. Under the Company’s shared services business model, the manufacturing plants produce products based on factors such as the customer’s geographic location, the plant’s costs of production and market conditions. Previously, specific DMO and DCULLC plants would produce certain branded products.

4.1.8 Sourcing

Deluxe Supply Management functions are performed by DEO for DMO and DCULLC through DEO’s Supply Management/Sourcing group. The Sourcing group strategically sources raw, semi-finished, and finished goods including coated and uncoated paper, sheet tag, envelopes, security bags, corrugated boxes, flexible films, roll vinyl, leather, fabric and vinyl checkbook covers, and folding boxes. DEO attempts to match optimum price with demand needs and maintain relationships with quality suppliers who deliver in a timely manner and whose products have few defects. DEO negotiates all procurement contracts for the Company.

The primary raw materials used to produce the Company’s products are paper, ink and cartons. The Supply Management/Sourcing group arranges contracts for the Deluxe Affiliates to purchase these products from various third-party sources. Additionally, the Sourcing group utilizes a paper printing plate material that is available from a limited number of sources.

When determining suppliers of goods or services, the Sourcing group issues a request for proposal and compares bids received. Once a supplier has been selected, DEO negotiates a contract. The Sourcing group places orders with suppliers based on the demand forecasts communicated by Deluxe. The suppliers then provide DMO and DCULLC with the raw materials to be used in production. The Sourcing group organizes purchase and shipment for over 90 percent of direct materials for Deluxe manufacturing operations.

Once a relationship with a supplier has been established, the product purchase team assigned to that specific good or service within the Sourcing group is responsible for maintaining the relationship for the Company. Currently, DEO maintains 700 strategic supplier relationships for its raw materials and the Sourcing group is actively working to narrow the Company’s supplier base to reduce its list of preferred vendors.

4.1.9 Manufacturing

The Company’s primary manufacturers, DMO and DCULLC, have invested heavily in production equipment and technology to reduce costs and increase productivity. There has been a conversion to a cellular manufacturing environment in all facilities. Within the cellular manufacturing environment, a group of employees work together to produce products, rather than a single employee working on individual tasks in a linear fashion., This results in improvements in quality and service levels and reductions in costs because employees assume more ownership of the product.

Personal Check Manufacturing

The personal check manufacturing process is the most automated process within DMO and DCULLC due to its high volume and relatively standardized products. Orders are captured through the CI system and consolidated into batches of 12 similar customer orders, by design, quantity, and customer geographic area. Batch orders are then transmitted by DEO to a DMO or DCULLC plant, where proof sheets are created. Plant personnel manually check the proof sheets for errors. Once proofs are accepted, plates are made for the batch orders. The batch orders are transmitted to the press, the plate is loaded into the machine, and the machines begin printing the batch orders. Generally, check printing is done on offset printing presses; however, digital printing machines are also utilized. The presses are capable of various printing options, including colors, fonts, and customer-specific messages. Once printed, the batch orders go through automatic collating and tagging functions and then through automatic binding/taping and packaging functions. Finally, orders are manually checked for quality, sorted, and shipped to the end-customer.

Small Business Products Manufacturing

Due to increased variability of products ordered, the small business products manufacturing process requires a greater variety of machines and manual processes to accommodate the customized nature of the products. The process has the same front-end functions as the check printing manufacturing process. Orders are captured by DEO electronically through a customer call center or the internet and transmitted to a plant. Proof sheets are created and checked for quality by personnel at DMO and DCULLC. Designs are loaded into the machines and printing begins. Small business product machines are capable of many printing options, due to the customized nature of the products. Options include colors, fonts, customer-specific messages, and any other printing features. In addition to offset printing machines, the small business products manufacturing process also utilized digital printing machines. Unlike the check printing process, binding and packaging functions are manual for small business products due to the variety of styles and quantities. Finally, orders are manually checked for quality, sorted, and shipped to the end-customer.

4.1.10 Sales and Distribution

Sales activities are undertaken by DFS, DSBS, DCUS and CBD.

DFS sells checks and related products directly to financial institutions who have a corporate supply contract in place with DFS. DFS field sales staff work with financial institution branches to help them increase new customer accounts and maintain existing customer accounts.

DSBS acquires new customers through various channels, including financial institution referrals, direct advertising, dealers, distributors, brokers, and other alliances (e.g., Microsoft Money TM forms, software firm forms, etc.) and sells under Deluxe brands as well as Hostopia. DSBS estimates that approximately 50 percent of its customers will not be returning customers. Additionally, the small businesses environment is dynamic; firms constantly come and go. These factors greatly influence DSBS's sales functions. When a new, small business opens an account at a financial institution, the financial institution refers the customer to DSBS and provides DSBS with the customer’s information in exchange for a commission. Thus, DSBS can either serve the financial institution customer directly, or the financial institution will act as an intermediary and provide DSBS with its customers’ orders. Sales via financial institutions represent approximately 15 percent of DSBS’s revenue. The other 85 percent of DSBS's revenue is generated by the direct advertising sales channel. Generally, direct mailings are sent to referral customers and advertisements are inserted into papers. These customers usually place orders with DSBS through DSBS's call centers. Additionally, DSBS places outbound telemarketing calls to small businesses. Prices for products sold by DSBS are set by DSBS. DSBS sells products to small business customers at retail prices.

DCUS sells products to consumers through specific direct marketing programs and campaigns. Activities include creating advertising inserts for Sunday newspapers and coupon inserts for ValPak, distributing catalogs, and maintaining the customer websites. DCUS aims to drive consumers to call its call centers and visit its website. DCUS focuses its advertising effort on rural and suburban areas as compared to urban areas where debit and credit card use is more popular. DCUS's customers seek check designs and lower prices compared to convenience-oriented consumers who order checks through their financial institutions. Prices for products sold by DCUS are set by DCUS. DCUS sells products to its customers at retail prices with a strategy of selling at a lower or discounted price for initial orders and higher prices for repeat orders.

Marketing initiatives, such as advertising campaigns, industry seminars, and other marketing tools are generally dictated by DEO for DFS, DSBS and DCUS. Products sold by these entities are purchased from DEO and shipped directly to the customer from a Deluxe manufacturing plant.

DCUS sells checks and related products directly to CBD. CBD solicits retail sales through customer facing websites. Prices for products sold by CBD are set by CBD. CBD sells its products to its customers at retail prices with a strategy of selling at a lower or discounted price for initial orders and higher prices for repeat orders. Products sold by CBD are purchased from DCUS and shipped to third-party customers.

HOST CAN works with DSBS to develop strategies to acquire new customers, further penetrate the existing end-user base of wholesale customers to grow average revenue per end-user and pursue appropriate business acquisitions to accelerate growth. HOST CAN signs its own contracts and is responsible for maintaining its own client relationships.

4.1.11 Order Fulfillment

Customer orders are fulfilled in different ways depending on the business segment.

CBD, DCUS and DSBS orders are placed through call centers or online. In the case where customers make calls to a call center, the sales agent takes the customer’s orders and attempts to sell additional products. The sales agent will enter relevant data into the CI system at DEO. The CI system then electronically sends order data to Deluxe manufacturing plants (DMO or DCULLC). Orders that are received via the internet are sent directly to a Deluxe manufacturing plant.

DFS orders are obtained through call centers, direct mail, or online at the DFS or a financial institution website. Data for these orders is entered into the CI system, which electronically sends order data to a Deluxe manufacturing plant. In the case where customers make calls to one of DFS's call centers, the sales agent takes customer orders and attempts to sell additional products. Most call centers operate under the Deluxe brand name; however, some call centers operate under a financial institution’s brand name or under a co-branded name (i.e., both DFS and financial institution’s brand names are used). Prices for products sold by DFS are set as outlined in the contracts that DFS has negotiated with the financial institutions.

Once product production is complete, finished products are shipped directly to the end-user from the Deluxe manufacturing plant. The U.S. Postal Service is used to ship personal check boxes, while UPS is used primarily to ship all small business products. Delivery methods and shipping instructions are dictated through order capture system. The system also provides for any additional delivery costs due to special shipping methods.

HOST CAN maintains a call center in Canada specifically dedicated to Hostopia business sales and customer support.

4.1.12 Technical Support

All the technical support agents are employees of HOST CAN. A competent and friendly call center is crucial to maintaining existing customer relationships. Lack of an effective call center would result in an increased turnover of customers.

4.2 Assets

The Company’s primary tangible assets consist of land, buildings, and machinery and equipment. Tangible assets also include internal-use software and inventory and supplies related to corporate shared services functions of manufacturing, information technology, and real estate.

The Company’s primary intangible assets are its customer lists, tradenames and trademarks, software, and manufacturing technology. Most of these intangibles are owned by DLX and DEO. DEO's IP consists of a combination of trademark and copyright laws, trade secret protection, patents, confidentiality and license agreements, and manufacturing knowhow. DEO owns the rights to, maintains, and protects this IP within the United States.

Deluxe relies on a combination of trademark and copyright laws, trade secret and patent protection, and confidentiality and license agreements to protect our trademarks, software and other IP. These protective measures afford only limited protection. Third parties may infringe or misappropriate the Company’s IP or otherwise independently develop substantially equivalent products or services that do not infringe on Deluxe-owned IP rights, either of which may adversely impact the results of the Company’s operations. Additionally, Deluxe may be the target of the aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Check designs licensed from third parties account for a portion of the Company’s revenue. These license agreements generally average two to three years in duration and there is no guarantee that such licenses will be available indefinitely or under terms that would allow the Company to continue to sell the licensed products profitably. If the Company were to lose the rights to a significant portion of its licensed check designs, it may adversely impact the Company’s profit.

4.2.1 Trademarks / tradenames

DEO owns several valuable trademarks, tradenames and service marks, including:

Deluxe®

NEBS®

PsPrint®

ChecksUnlimited®

Designer Checks®

Checks.com®

The foreign entities have retained their own trademarks, including Safeguard®, Hostopia® and VerticalResponse®.

4.2.2 Manufacturing Technology

DEO owns the right to a proprietary printing press Deluxe Computer Offset Press ("DCOP"). DCOP was designed in the United States by DEO several years ago. A third party manufactures the press, and DEO then customizes it. The DCOP uses a unique combination of lithography and imprinting. Lithography is used to print the name, address and institutional information on the check. Imprinting uses magnetic ink and is used for the account tracking data on the bottom of the check. The DCOP is computer controlled and is a high-speed and highly automatic press. The competitive advantage of the DCOP is the customized magnetic ink character recognition ("MICR") process that prints the banking numbers at the bottom of the checks. Deluxe's MICR technology is the best in the industry and provides a significant advantage over its competitors.

Safeguard has a proprietary security feature that is unique in the industry; a seal that appears on the face of the check that uses thermo chromatic ink. The patented manufacturing process produces heat-sensitive checks for security purposes. DEO owns these technologies.

4.2.3 Customer Lists

DEO owns and maintains significant customer lists and data in each of its major business segments. In the Small Business Service segment, Deluxe has provided products and services to more than 4.4 million small business customers over the past 24 months. In a similar frame, DCUS has provided products and services to more than 5.1 million customers. DFS provides products and services to approximately 4,900 financial institution clients.

4.2.4 Proprietary Software

DEO owns and maintains valuable internal use software related to its various ordering and manufacturing platforms. Such platforms, including the proprietary CI ordering software are utilized across all the business segments.

In the Small Business Service segment, DSBS owns internally developed software related to its webhosting (Hostopia), e-mail marketing (VerticalResponse) and search engine marketing (OrangeSoda).

In the Financial Services segment, DFS owns proprietary software utilized in the provision of its Deluxe Rewards engagement/loyalty services provide to financial institutions. This software includes fully integrated redemption services and fulfillment modules used to help financial institutions manage customer engagement and loyalty programs.

Further, in the Financial Services segment, Wausau has developed proprietary software and systems used in its provision of lockbox, remote deposit capture and paperless accounts receivable management services to financial institution clients.

4.3 Risks

Business risks are those circumstances that may expose a company to the possibility of loss or damage. The risks borne by the Company are discussed below.

4.3.1 Credit Risk

Credit risk occurs when a company assumes financial responsibility for the late payment or nonpayment of accounts receivable. In general, credit risk is minimal. DFS bears the risk of non-payment by financial institution clients. CBD and DCUS sell directly to consumers, and thus bear the risk of non-payment by customers. Since DMO and DCULLC sell the products they manufacture to the Affiliates at a cost-plus markup, they do not bear credit risk. Historically, these risks have been minimal for the Company.

4.3.2 Inventory Risk

Inventory risk relates to the losses associated with carrying raw materials and finished product inventory. Losses include obsolescence, shrinkage, or market collapse such that products are only salable at prices that produce a loss.

DFS, DSBS and DCUS take title to goods from DEO as the goods are shipped from DMO and DCULLC to end customers. CBD takes title to goods from DCUS as the goods are shipped from DMO and DCULLC to end customers. DCULLC and DMO bear the risks associated with holding raw materials inventory. DCULLC and DMO use a just-in-time inventory management system to minimize inventory risks. Finished product inventory risk is minimal as title passes from DMO or DCULLC to related parties at product completion.

4.3.3 Product Warranty & Liability Risk

Product warranty and liability risk exists when a company is financially responsible for any warranty and liability issues arising from the sale of a certain product. DFS, DCUS, CBD and DEO bear risks associated with errors in order entry and order processing. DMO and DCULLC each bear the risks of defective products. Other product warranty and liability risks are borne by the selling entity. Historically, product warranty and liability losses have been minimal and are expected to continue to be low.

4.3.4 Manufacturing Failure Risk

Manufacturing failure risk relates to the losses associated with failed or spoiled batch orders due to errors that occurred during the manufacturing process. DMO and DCULLC each bear the risks associated with failed batches, raw materials waste, damaged machines, and human errors associated with the manufacturing process. This risk has been historically low, and even lower with recent manufacturing improvements.

4.3.5 Foreign Exchange Risk

A company is exposed to foreign exchange risk if its profits are affected, beyond its own control, by fluctuations in currency rates. While a company can often manage short-term foreign exchange risk for many currencies by hedging, it may be unable to eliminate its risk if most of its customers are located outside of its country. HOST CAN does not currently actively manage the United States – Canadian dollar exchange rate risk using financial instruments. HOST CAN earns significant revenue and pays significant expenses in Canada and substantially all the employees are in Canada and are paid in Canadian dollars. However, since it is remunerated based on a markup on its total costs, HOST CAN foreign exchange risk is limited.

4.3.6 Market Risk

Market risk arises when a company is subject to adverse sales conditions due to increased competition, declining conditions within the market or the inability to develop markets or position products to reach targeted customers. Demand for checks and forms may continue to decline as the federal government begins to develop an initiative to develop infrastructure for real-time payments. As there are relatively low barriers to entry for the provision of basic Web services, competition is expected to increase from both established and emerging companies. All Company entities face these risks. These risks are believed to be commensurate with those of other industry participants.

5. Benchmarking Data

In conducting the economic analysis that determined whether transfer pricing between the Company’s entities has been conducted at arm’s length, the Deluxe Corporation utilized the searches below. The sections below describe the benchmark searches developed for the Company’s intercompany transactions. The identification of tested party, selection of method, application of method, selection of profit level indicator, and selection of number of years of comparison are addressed in the local country reports.

We searched the Standard & Poor’s Capital IQ platform (“CIQ”) to identify benchmark companies that perform broadly similar functions to a management and back office services provider . CIQ provides historical and current information on more than 60,000 public companies and two million private firms as well as stock reports on more than 4,000 leading public equities across the globe.

In performing our benchmarking studies, we utilized Standard Industrial Classification (“SIC”) codes. SIC codes are used by the Federal Government to identify and classify specific categories of business activity that represent the primary line of business of a firm. Therefore, utilizing SIC codes affords entity comparisons within such sectors. Major sectors are categorized under two-digit SIC codes, while sub-sectors are categorized under extended three and four-digit SIC codes.

5.1 North Ameri ca Management and Back Office Services

In performing our search for comparable management & back office services providers, we utilized the following industry groups:

736: Personnel Supply Services

811: Legal Services

872: Accounting, Auditing, and Bookkeeping Services

We also used the SIC codes below:

7371: Computer Programming Services

7373: Computer Integrated Systems Design

7374: Data Processing & Preparation

7389: Business Services, Not Elsewhere Classified

8741: Management Services

8742: Management Consulting Services

8748: Business Consulting, nec

We also used screens to eliminate companies who were not classified as operating and companies whose consolidated and unconsolidated operating revenue were missing for two or more years. These screens identified 132 companies for further review.

A screenshot of the search is shown below:

A screenshot of a computer

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to management services providers. This step eliminated 117 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

133,230

Automated screening rejection criteria

 

Region: North America

92,613

Company type: Public

40,199

Company status: Operating

196

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

90

Automated screening rejections

133,098

Remaining companies for manual review

132

Manual screening rejection criteria

 

Dissimilar functions/functional markets

82

Dissimilar services / wider range of services

35

Manual review rejections

117

Companies selected as benchmarks

15

After applying the screens defined above, fifteen companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of management and back office services:

1. ASGN Inc.

2. Barrett Business Services, Inc.

3. CBIZ, Inc.

4. CRA International, Inc.

5. FTI Consulting, Inc.

6. Huron Consulting Group

7. ICF International Inc

8. Insperity Inc

9. Kelly Services, Inc.

10. Kforce Inc.

11. ManpowerGroup Inc.

12. Navigant Consulting, Inc.

13. Resources Connection, Inc.

14. Robert Half International Inc.

15. Sykes Enterprises, Incorporated

Appendices 1–2 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, and 2) the selected comparables' business descriptions, and financials.

The ROTC was selected as the appropriate PLI to determine arm’s length returns for management and back office functions. The IQR of the ROTC over the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average ROTCs of the comparables:

Comparable

2018

2017

2016

Weighted Average

ASGN Incorporated

8.9%

9.5%

8.7%

9.0%

Barrett Business Services, Inc.

4.1%

3.4%

3.6%

3.7%

CBIZ, Inc.

11.2%

8.4%

9.0%

9.6%

CRA International, Inc.

7.4%

5.1%

6.2%

6.2%

FTI Consulting, Inc.

12.6%

9.2%

9.3%

10.4%

Huron Consulting Group Inc.

7.2%

8.1%

12.7%

9.2%

ICF International, Inc.

7.5%

7.6%

7.5%

7.6%

Insperity, Inc.

5.2%

4.2%

3.7%

4.4%

Kelly Services, Inc.

1.6%

1.6%

1.3%

1.5%

Kforce Inc.

6.1%

5.3%

5.1%

5.5%

ManpowerGroup Inc.

3.9%

4.1%

4.0%

4.0%

Navigant Consulting, Inc.

4.8%

4.9%

6.4%

5.4%

Resources Connection, Inc.

 

7.3%

7.3%

7.3%

Robert Half International Inc.

11.3%

10.9%

11.8%

11.3%

Sykes Enterprises, Incorporated

6.0%

6.2%

6.9%

6.4%

 

Minimum

1.6%

1.6%

1.3%

1.5%

Lower Quartile

4.8%

4.2%

4.0%

4.4%

Median

6.7%

6.2%

6.9%

6.4%

Upper Quartile

8.9%

8.4%

9.0%

9.2%

Maximum

12.6%

10.9%

12.7%

11.3%

Observations

15

15

15

15

Management & back office services companies generated a three-year, weighted average, ROTC IQR extending from 4.4 to 9.2 percent, with a 6.4 percent median.

5.2 North America Manufacturing

In performing our search for comparable contract manufacturers, we searched the following SIC codes and SIC Major Groups:

Major Group 26: Paper and Allied Products

Major Group 27: Printing, Publishing, and Allied Industries

We also used screens to eliminate companies who were not classified as operating and companies whose consolidated and unconsolidated operating revenue were missing for two or more years. These screens identified 65 companies for further review.

A screenshot of the search is shown below:

A screenshot of a computer

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to manufacturers. This step eliminated 58 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

43,553

Automated screening rejection criteria

 

Region: North America

32,993

Company type: Public

10,377

Company status: Operating

91

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

27

Automated screening rejections

43,488

Remaining companies for manual review

65

Manual screening rejection criteria

 

Dissimilar product

19

Dissimilar services / wider range of services

36

Company is a subsidiary

2

Other

1

Manual review rejections

58

Companies selected as benchmarks

7

After applying the screens defined above, seven companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of manufacturing activities:

1. Domtar Corporation

2. Ennis, Inc.

3. Impreso, Inc

4. Quad/Graphics, Inc.

5. RR Donnelley & Sons Co.

6. Supremex, Inc.

7. Transcontinental Inc.

Appendices 3–4 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, 2) the selected comparables' business descriptions and financials.

The ROTC was selected as the appropriate PLI to determine arm’s length returns for contract manufacturing functions. The IQR of the ROTC for the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average ROTCs of the comparables:

Comparable

2018

2017

2016

Weighted Average

Domtar Corporation

8.1%

5.0%

6.0%

6.4%

Ennis, Inc.

14.2%

14.7%

12.9%

14.0%

Impreso, Inc.

2.6%

0.5%

0.6%

1.3%

Quad/Graphics, Inc.

4.0%

5.6%

4.7%

4.8%

R.R. Donnelley & Sons Company

3.7%

4.0%

3.8%

3.8%

Supremex Inc.

11.1%

13.6%

15.2%

13.2%

Transcontinental Inc.

17.4%

16.8%

16.4%

16.9%

 

Minimum

2.6%

0.5%

0.6%

1.3%

Lower Quartile

3.7%

4.0%

3.8%

3.8%

Median

8.1%

5.6%

6.0%

6.4%

Upper Quartile

14.2%

14.7%

15.2%

14.0%

Maximum

17.4%

16.8%

16.4%

16.9%

Observations

7

7

7

7

Contract manufacturers generated a three-year, weighted average, ROTC IQR extending from 3.8 to 14.0 percent, with a 6.4 percent median.

5.3 North America Marketing Services

In performing our search for comparable marketing services providers, we utilized the following industry groups:

731: Advertising and

899: Miscellaneous Services

We also utilized the following SIC codes:

7320: Credit Reporting & Collection

7322: Adjustment & Collection Services

7331: Direct Mail Advertising Services

7370: Computer & Data Processing Services

7374: Data Processing & Preparation

7389: Business Services, Not Elsewhere Classified

8721: Accounting, Auditing & Bookkeeping

8732: Commercial Nonphysical Research

8740: Management & Public Relations

8741: Management Services

8742: Management Consulting Services

8743: Public Relations Services

8748: Business Consulting, nec

In addition, we also searched the following CIQ Industry Classification:

- Online Transportation Booking Services

We also used screens to eliminate companies who were not classified as operating and companies whose consolidated and unconsolidated operating revenue were missing for two or more years. These screens identified 123 companies for further review.

A screenshot of the search is shown below:

A screenshot of a social media post

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to marketing services providers. This step eliminated 117 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

122,355

Automated screening rejection criteria

 

Region: North America

85,988

Company type: Public

35,930

Company status: Operating

215

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

99

Automated screening rejections

122.232

Remaining companies for manual review

123

Manual screening rejection criteria

 

Dissimilar functions/functional markets

95

Dissimilar services / wider range of services

20

Insufficient information on business activities

2

Manual review rejections

117

Companies selected as benchmarks

6

After applying the screens defined above, six companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of marketing services :

1. Advantex Marketing International, Inc.

2. Affinion Group Inc

3. Alliance Data Systems Corporation

4. Fluent, Inc.

5. Harte-Hanks, Inc.

6. Points International Ltd.

Appendices 5–6 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, and 2) the selected comparables' business descriptions, and financials.

The ROTC was selected as the appropriate PLI to calculate an arm’s length return for performing marketing functions. The IQR of the ROTCs over the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average ROTCs of the comparables.

Comparable

2018

2017

2016

Weighted Average

Advantex Marketing International, Inc.

15.6%

3.6%

9.2%

8.9%

Affinion Group Inc

10.2%

10.3%

8.5%

9.7%

Alliance Data Systems Corporation

24.0%

21.3%

17.3%

20.9%

Fluent, Inc.

10.5%

-5.3%

-12.6%

-2.3%

Harte-Hanks, Inc.

-6.9%

-1.6%

-3.6%

-3.8%

Points International Ltd.

2.8%

1.3%

1.6%

1.9%

 

Minimum

-6.9%

-5.3%

-12.6%

-3.8%

Lower Quartile

2.8%

-1.6%

-3.6%

-2.3%

Median

10.4%

2.5%

5.1%

5.4%

Upper Quartile

15.6%

10.3%

9.2%

9.7%

Maximum

24.0%

21.3%

17.3%

20.9%

Observations

6

6

6

6

Marketing companies generated a three-year, weighted average, ROTC IQR extending from negative 2.3 to 9.7 percent, with a 5.4 percent median.

5.4 North America Sales – Wholesale / Direct Marketing

In performing our search for comparable wholesale / direct marketing services providers, we utilized the following SIC Industry Groups:

511: Wholesale - Paper and Paper Products

519: Wholesale - Miscellaneous Non-Durable Goods

596: Wholesale – Non-store retailers

And we utilized the following SIC codes:

5000: Wholesale – Durable Goods

5045: Wholesale - Computers, Peripherals & Software

5941: Wholesale - Sporting Goods Stores and Bicycle Shops

5942: Wholesale - Book Stores

5943: Wholesale - Stationery Stores

We also used screens to eliminate companies who were not classified as operating and companies whose consolidated and unconsolidated operating revenue were missing for two or more years. These screens identified 151 companies for further review.

A screenshot of the search is shown below:

A screenshot of a computer

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to wholesale distributors. This step eliminated 135 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

349,059

Automated screening rejection criteria

 

Region: North America

280,742

Company type: Public

67,725

Company status: Operating

336

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

105

Automated screening rejections

348,908

Remaining companies for manual review

151

Manual screening rejection criteria

 

Dissimilar products

30

Dissimilar functions / functional markets

105

Manual review rejections

135

Companies selected as benchmarks

16

After applying the screens defined above, sixteen companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of wholesale distribution activities :

1. ADDvantage Technologies Group, Inc.

2. Applied Industrial Technologies, Inc.

3. EACO Corporation

4. HD Supply Holdings, Inc.

5. Houston Wire & Cable Company

6. InnerWorkings, Inc.

7. Lawson Products, Inc.

8. MRC Global Inc.

9. MSC Industrial Direct Co., Inc.

10. ScanSource, Inc.

11. SiteOne Landscape Supply, Inc.

12. SPAR Group, Inc.

13. Surge Components, Inc.

14. Tech Data Corporation

15. Uni-Select Inc.

16. Veritiv Corporation

Appendices 7–8 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, 2) the selected comparables' business descriptions and the financials.

The operating margin (“OM”) was selected as the appropriate PLI to calculate an arm’s length return for wholesale / direct marketing functions. The IQR of the OM over the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average OMs of the comparables.


Comparable

2018

2017

2016

Weighted Average

ADDvantage Technologies Group, Inc.

-6.5%

0.3%

0.9%

-1.9%

Applied Industrial Technologies, Inc.

7.6%

6.7%

6.4%

7.0%

EACO Corporation

5.3%

4.0%

4.3%

4.6%

HD Supply Holdings, Inc.

12.1%

12.0%

11.9%

12.0%

Houston Wire & Cable Company

3.9%

1.4%

-1.6%

1.5%

InnerWorkings, Inc.

0.3%

3.1%

3.2%

2.2%

Lawson Products, Inc.

2.7%

1.7%

0.5%

1.8%

MRC Global Inc.

3.1%

1.8%

-1.0%

1.5%

MSC Industrial Direct Co., Inc.

14.1%

13.1%

13.1%

13.5%

ScanSource, Inc.

2.7%

2.6%

2.8%

2.7%

SiteOne Landscape Supply, Inc.

5.1%

5.3%

4.5%

5.0%

SPAR Group, Inc.

2.3%

2.3%

1.6%

2.1%

Surge Components, Inc.

4.7%

1.1%

-1.6%

1.5%

Tech Data Corporation

1.6%

1.5%

1.3%

1.5%

Uni-Select Inc.

4.6%

6.1%

7.6%

5.9%

Veritiv Corporation

1.2%

1.7%

17.2%

6.6%


 

Minimum

-6.5%

0.3%

-1.6%

-1.9%

Lower Quartile

2.0%

1.6%

0.7%

1.5%

Median

3.5%

2.4%

3.0%

2.4%

Upper Quartile

5.2%

5.7%

7.0%

6.2%

Maximum

14.1%

13.1%

17.2%

13.5%

Observations

16

16

16

16

Wholesale / direct marketing companies generated a three-year, weighted average, OM IQR extending from 1.5 to 6.2 percent, with a 2.4 percent median.

5.5 North America Sales – Retail – Direct to Business

In performing our search for comparable retail distribution companies, we utilized the following SIC Industry Groups:

511: Paper and Paper Products

And we utilized the following SIC codes:

5045: Wholesale - Computers, Peripherals & Software

5940: Wholesale - Miscellaneous Shopping Good Stores

5943: Wholesale - Stationery Stores

5960: Wholesale - Nonstore Retailers

5961: Wholesale - Catalog & Mail Order Houses

5963: Wholesale – Direct Selling Establishments

5990: Wholesale – Retail stores

7370: Services – Computer & Data Processing Services

In addition, we also searched the following CIQ Industry Classification:

- Online Office Product and Supply Retail

- Online Paper Product Retail

- Online Stationery Retail

We also used screens to eliminate companies who were not classified as operating and companies whose consolidated and unconsolidated operating revenue were missing for two or more years. These screens identified 138 companies for further review.

A screenshot of the search is shown below:

A screenshot of a computer

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to retail distributors This step eliminated 129 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

280,476

Automated screening rejection criteria

 

Region: North America

221,357

Company type: Public

58,600

Company status: Operating

293

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

88

Automated screening rejections

280,338

Remaining companies for manual review

138

Manual screening rejection criteria

 

Dissimilar products

5

Dissimilar functions / functional markets

123

3 years of operating losses

1

Manual review rejections

129

Companies selected as benchmarks

9

After applying the screens defined above, nine companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of retail distribution activities:

1. Amazon.com, Inc.

2. Bluestem Group Inc.

3. Indigo Books & Music Inc.

4. Office Depot Inc

5. PC Connection, Inc.

6. PCM Inc

7. School Specialty, Inc.

8. Stamps.com Inc.

9. Systemax Inc.

Appendices 9–10 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, and 2) the selected comparables' business descriptions and financials.

The OM was selected as the appropriate PLI to calculate an arm’s length return for performing retail functions. The IQR of the OM over the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average OMs of the comparables:

Comparable

2018

2017

2016

Weighted Average

Amazon.com, Inc.

5.3%

2.3%

3.1%

3.8%

Bluestem Group Inc.

2.3%

0.5%

-2.0%

0.2%

Indigo Books & Music Inc.

-5.1%

2.5%

2.4%

-0.1%

Office Depot, Inc.

3.3%

4.2%

4.2%

3.9%

PC Connection, Inc.

3.2%

2.8%

3.1%

3.0%

PCM, Inc.

1.9%

0.7%

1.5%

1.4%

School Specialty, Inc.

1.2%

4.3%

4.0%

3.1%

Stamps.com Inc.

33.5%

34.5%

33.0%

33.7%

Systemax Inc.

6.6%

5.8%

1.6%

4.8%


 

Minimum

-5.1%

0.5%

-2.0%

-0.1%

Lower Quartile

1.9%

2.3%

1.6%

1.4%

Median

3.2%

2.8%

3.1%

3.1%

Upper Quartile

5.3%

4.3%

4.0%

3.9%

Maximum

33.5%

34.5%

33.0%

33.7%

Observations

9

9

9

9

Retail companies generated a three-year, weighted average, OM IQR extending from 1.4 to 3.9 percent, with a 3.1 percent median.

5.6 North America IT Services

In performing our search for comparable IT services providers, we searched the following SIC codes:

7361: Employment Agencies

7370: Computer & Data Processing Services

7371: Computer Programming Services

7373: Computer Integrated Systems Design

7374: Data Processing & Preparation

7379: Computer Related Services, nec

7389: Business Services, Not Elsewhere Classified

8741: Management Services

8742: Management Consulting Services

We also used the following CIQ industry classification:

IT Consulting and Other Services

We also used screens to eliminate companies who were did not have a market capitalization greater than 0 and who had an R&D/sales ratio greater than five percent. These screens identified 171 companies for further review.

A screenshot of the search is shown below:

A screenshot of a computer

Description automatically generated

We reviewed the business descriptions of the potential benchmark companies to evaluate the similarity of the functions, assets and risks of these companies to IT services providers distributors. This step eliminated 163 companies.

For the remaining companies, we reviewed annual reports and company websites to clarify the companies’ activities. The table below presents a summary of the search process.

Summary of the benchmark company search and evaluation process

 

Number of Companies

SIC database CIQ industry search results

162,885

Automated screening rejection criteria

 

Region: North America / Caribbean

114,205

Market capitalization >0

48,185

Companies whose consolidated and unconsolidated operating revenue were missing for two or more years.

221

Companies who had a R&D/Sales ratio >5%

73

Automated screening rejections

162,684

Remaining companies for manual review

171

Manual screening rejection criteria

 

Dissimilar services/wider range of services

71

Dissimilar functions / functional markets

84

Subsidiary

1

Different geographic market

5

3 years of operating losses

2

Manual review rejections

163

Companies selected as benchmarks

8

After applying the screens defined above, eight companies were selected as benchmark companies. We consider the companies below suitable to benchmark the returns on providers of IT services :

1. Cognizant Technology Solutions Corp

2. Genpact Limited

3. Information Services Group, Inc.

4. Mastech Holdings, Inc.

5. Perficient, Inc.

6. The Hackett Group, Inc

7. Virtusa Corporation

8. Wistron Information Technology & Services Corporation

Appendices 11–12 respectively provide: 1) the potential comparables' selection matrix, with exclusion rationales, and 2) the selected comparables' business descriptions and financials.

The ROTC was selected as the appropriate PLI to calculate an arm’s length return for performing IT functions. The IQR of the ROTC over the most recent three-year period of available data was calculated. The table below presents the single-year and weighted average ROTCs of the comparables.


Comparable

2018

2017

2016

Weighted Average

Cognizant Technology Solutions Corporation

21.3%

21.2%

20.7%

21.1%

Genpact Limited

13.2%

14.0%

15.1%

14.0%

Information Services Group, Inc.

5.4%

4.7%

1.7%

4.1%

Mastech Digital, Inc.

6.1%

4.3%

4.2%

4.9%

Perficient, Inc.

8.6%

7.4%

7.0%

7.7%

The Hackett Group, Inc.

16.2%

15.6%

16.0%

16.0%

Virtusa Corporation

6.0%

4.8%

2.2%

4.5%

Wistron Information Technology & Services Corporation

5.5%

3.4%

1.5%

3.8%

 

Minimum

5.4%

3.4%

1.5%

3.8%

Lower Quartile

5.7%

4.5%

2.0%

4.3%

Median

7.4%

6.1%

5.6%

6.3%

Upper Quartile

14.7%

14.8%

15.6%

15.0%

Maximum

21.3%

21.2%

20.7%

21.1%

Observations

8

8

8

8

IT companies generated a three-year, weighted average, ROTC IQR extending from 4.3 to 15.0 percent, with a 6.3 percent median.

6. Appendices

Appendix 1: Management & Back Office Services Potential Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar services or wider range of services

Different functional activities/markets

Rejection detail

1

3Pea International, Inc. (NasdaqCM:TPNL)

7374 Data processing and preparation

 

X

Provides prepaid card products and processing services

2

Advantex Marketing International Inc. (CNSX:ADX)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Operates in the marketing services industry

3

Affinion Group Holdings, Inc. (OTCPK:AFGR)

7389 Business services

 

X

Designs and markets customer loyalty programs

4

Agora Holdings, Inc. (OTCPK:AGHI)

8748 Business consulting ; 8740 Management and public relations services

 

X

Engages in the software development business

5

ALJ Regional Holdings, Inc. (NasdaqGM:ALJJ)

7374 Data processing and preparation

X

 

Provides call center, back-office, staffing, and toll collection services

6

Alliance Data Systems Corporation (NYSE:ADS)

7374 Data processing and preparation

 

X

Provides marketing and loyalty solutions

7

American Cannabis Company, Inc. (OTCPK:AMMJ)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides solutions for businesses operating in the regulated cannabis industry

8

AMN Healthcare Services, Inc. (NYSE:AMN)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides healthcare staffing services

9

AMREP Corporation (NYSE:AXR)

7389 Business services

X

 

Provides real estate and fulfillment services

10

ARC Document Solutions, Inc. (NYSE:ARC)

7389 Business services

 

X

A reprographics company

11

ATW Tech Inc. (TSXV:ATW)

7389 Business services

 

X

Provides information technology solutions

12

Automatic Data Processing, Inc. (NasdaqGS:ADP)

7374 Data processing and preparation

 

X

Offers cloud based outsourcing software

13

B. Riley Financial, Inc. (NasdaqGM:RILY)

7389 Business services

 

X

Provides collaborative financial services and solutions

14

BG Staffing, Inc. (AMEX:BGSF)

7363 Help supply services ; 7360 Personnel supply services

X

 

Provides temporary staffing services

15

Black Knight, Inc. (NYSE:BKI)

7374 Data processing and preparation

 

X

Provides integrated technology, workflow automation, and data and analytics to the mortgage and real estate industries

16

Butler National Corporation (OTCPK:BUKS)

8741 Management services ; 8740 Management and public relations services

 

X

Provides aerospace products

17

Calian Group Ltd. (TSX:CGY)

7374 Data processing and preparation

 

X

Provides systems engineering, manufacturing, training, information technology (IT), and healthcare solutions

18

Cardtronics plc (NasdaqGS:CATM)

7389 Business services

X

 

Provides automated consumer financial services

19

Cass Information Systems, Inc. (NasdaqGS:CASS)

7389 Business services

 

X

Provides commercial banking services

20

Cinedigm Corp. (NasdaqGM:CIDM)

7389 Business services

 

X

Operates as distributor and aggregator of independent movie, television, and other short form content

21

Collectors Universe, Inc. (NasdaqGM:CLCT)

7389 Business services

 

X

Provides tradeables authentication and grading services

22

Command Center, Inc. (NasdaqCM:CCNI)

7363 Help supply services ; 7360 Personnel supply services

 

X

Provides on-demand employees for manual and industrial labor

23

Conduent Incorporated (NYSE:CNDT)

7374 Data processing and preparation

X

 

It offers payment integrity, support, member engagement, health risk assessment, claims processing, mailroom, and outbound printing services

24

CoreLogic, Inc. (NYSE:CLGX)

7374 Data processing and preparation

 

X

Provides property information, analytics, and data-enabled services

25

Cross Country Healthcare, Inc. (NasdaqGS:CCRN)

7363 Help supply services ; 7360 Personnel supply services

X

 

Provides healthcare staffing

26

CSG Systems International, Inc. (NasdaqGS:CSGS)

7374 Data processing and preparation

 

X

Provides business support solutions primarily to the communications industry

27

Cynergistek, Inc. (AMEX:CTEK)

7374 Data processing and preparation

 

X

Provides outsourced document solutions, IT consulting data security, and managed print services

28

Datametrex AI Limited (TSXV:DM)

7374 Data processing and preparation

 

X

Provides big data and artificial intelligence services

29

Dealnet Capital Corp. (TSXV:DLS)

7374 Data processing and preparation

 

X

Offers financing solutions through a network of home improvement dealers

30

DHI Group, Inc. (NYSE:DHX)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides data, insights, and employment connections through specialized service

31

Emerald Expositions Events, Inc. (NYSE:EEX)

7389 Business services

 

X

Operates business-to-business (B2B) trade shows

32

Eurocontrol Technics Group Inc. (TSXV:EUO)

7389 Business services

 

X

Engages in the acquisition, development, and commercialization of test and measurement technologies

33

EVERTEC, Inc. (NYSE:EVTC)

7374 Data processing and preparation

 

X

Engages in transaction processing business

34

EVO Payments, Inc. (NasdaqGM:EVOP)

7374 Data processing and preparation

 

X

Operates as an integrated merchant acquirer and payment processor

35

ExlService Holdings, Inc. (NasdaqGS:EXLS)

7374 Data processing and preparation

 

X

Provides operations management solutions and analytics

36

Exponent, Inc. (NasdaqGS:EXPO)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides scientific consulting services

37

Fidelity National Information Services, Inc. (NYSE:FIS)

7374 Data processing and preparation

X

 

Provides high-level strategic management services

38

First Data Corporation (NYSE:FDC)

7374 Data processing and preparation

 

X

Acquires and operates small businesses

39

Fiserv, Inc. (NasdaqGS:FISV)

7374 Data processing and preparation

 

X

Provides financial services technology

40

FleetCor Technologies, Inc. (NYSE:FLT)

7374 Data processing and preparation

 

X

Provides fuel cards, commercial payment and data solutions

41

Fluent, Inc. (NasdaqGM:FLNT)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Provides data-driven digital marketing services

42

FNB, Inc. (OTCPK:FIDS)

7389 Business services

 

X

Operates as the bank holding company

43

Genie Gateway (OTCPK:GGWY)

7374 Data processing and preparation

 

X

Provides unified communications and payment processing services

44

Global Payments Inc. (NYSE:GPN)

7374 Data processing and preparation

 

X

Provides payment solutions

45

Green Dot Corporation (NYSE:GDOT)

7389 Business services

 

X

Operates a bank holding company

46

Healthcare Integrated Technologies Inc. (OTCPK:HITC)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides staffing services to the cannabis industry

47

HealthLynked Corp. (OTCPK:HLYK)

7374 Data processing and preparation

 

X

Provides online platform for healthcare providers and patients

48

Heidrick & Struggles International, Inc. (NasdaqGS:HSII)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides retained executive search services

49

Hill International, Inc. (NYSE:HIL)

8741 Management services ; 8740 Management and public relations services

X

 

Provides construction consulting services

50

Hudson Global, Inc (NasdaqGS:HSON)

7361 Employment agencies ; 7360 Personnel supply services

 

X

Provides eDiscovery and document review services

51

i3 Verticals, Inc. (NasdaqGS:IIIV)

7374 Data processing and preparation

 

X

Provides integrated payment and software solutions

52

IBI Group Inc. (TSX:IBG)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Offere design and planning, architecture, civil engineering, transportation engineering, traffic engineering, systems engineering services

53

Information Services Group, Inc. (NasdaqGM:III)

7374 Data processing and preparation

X

 

Provides technology insights, market intelligence, and advisory services

54

InnerWorkings, Inc. (NasdaqGS:INWK)

7389 Business services

 

X

Provides marketing execution solutions

55

Innodata Inc. (NasdaqGM:INOD)

7374 Data processing and preparation

 

X

A digital services and solutions company, p

56

Internap Corporation (NasdaqGS:INAP)

7374 Data processing and preparation

X

 

Offers colocation services, including physical space within data centers

57

ITEX Corporation (OTCPK:ITEX)

7389 Business services

 

X

Operates as a market place for cashless business transactions

58

KAR Auction Services, Inc. (NYSE:KAR)

7389 Business services

 

X

Provides vehicle auction services

59

Korn Ferry (NYSE:KFY)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides organizational design and leadership development services

60

LiveRamp Holdings, Inc. (NYSE:RAMP)

7374 Data processing and preparation

 

X

Offers IdentityLink, an identity resolution platform

61

Magellan Health, Inc. (NasdaqGS:MGLN)

8741 Management services ; 8740 Management and public relations services

X

 

Provides managed behavioral healthcare services

62

Marchex, Inc. (NasdaqGS:MCHX)

7389 Business services

 

X

Operates as a call analytics company

63

Mastech Digital, Inc. (AMEX:MHH)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides IT staffing services

64

MAXIMUS, Inc. (NYSE:MMS)

8741 Management services ; 8740 Management and public relations services

 

X

Administers government health insurance programs

65

MGT Capital Investments, Inc. (OTCPK:MGTI)

7374 Data processing and preparation

 

X

Engages in bitcoin mining operations

66

Midwest Holding Inc. (OTCPK:MDWT)

8741 Management services ; 8740 Management and public relations services

 

X

Engages in underwriting and marketing life insurance products

67

Mission Ready Solutions Inc. (TSXV:MRS)

8740 Management and public relations services

X

 

Provides decontamination, cleaning, and repair services of protective services gear

68

MJardin Group, Inc. (CNSX:MJAR)

8741 Management services ; 8740 Management and public relations services

 

X

Operates as a specialized cannabis management company

69

MoneyOnMobile, Inc. (OTCPK:MOMT)

7374 Data processing and preparation

 

X

Provides digital payment services

70

Morneau Shepell Inc. (TSX:MSI)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Operates as a human resources consulting and technology company

71

NatureBank Asset Management Inc. (TSXV:COO)

8748 Business consulting ; 8740 Management and public relations services

 

X

Engages in sourcing, financing, developing, and commercializing commodity projects

72

Net Element, Inc. (NasdaqCM:NETE)

7374 Data processing and preparation

 

X

Global payments-as-a-service company

73

Novation Companies, Inc. (OTCPK:NOVC)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides outsourced health care staffing

74

Novume Solutions, Inc. (NasdaqCM:NVMM)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Provides consulting and technical support services

75

Paychex, Inc. (NasdaqGS:PAYX)

8721 Accounting, auditing, and bookkeeping ; 8720 Accounting, auditing, and bookkeeping services

 

X

Provides human resource software-as-a-service solutions

76

PayPal Holdings, Inc. (NasdaqGS:PYPL)

7374 Data processing and preparation

 

X

Operates as a technology platform and digital payments company

77

People Corporation (TSXV:PEO)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides individual and employee group benefits, group retirement, wellness, and human resource solutions

78

PFSweb, Inc. (NasdaqCM:PFSW)

7374 Data processing and preparation

 

X

Provides omni-channel commerce solutions

79

Pharma-Bio Serv, Inc. (OTCPK:PBSV)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides chemical laboratory testing services

80

Plastic2Oil, Inc. (OTCPK:PTOI)

7374 Data processing and preparation

 

X

Engages in the transforming unsorted and unwashed waste plastic into sulphur fuel

81

PRGX Global, Inc. (NasdaqGS:PRGX)

8721 Accounting, auditing, and bookkeeping ; 8720 Accounting, auditing, and bookkeeping services

 

X

Provides data mining services

82

Priority Technology Holdings, Inc. (NasdaqCM:PRTH)

7374 Data processing and preparation

 

X

Provides merchant acquiring and commercial payment solutions

83

R1 RCM Inc. (NasdaqGS:RCM)

8741 Management services ; 8740 Management and public relations services

X

 

Provides engineering, IT, and healthcare services

84

RCM Technologies, Inc. (NasdaqGM:RCMT)

7363 Help supply services ; 7360 Personnel supply services

X

 

Provides business and technology solutions

85

RediShred Capital Corp. (TSXV:KUT)

7389 Business services

X

 

Provides onsite shredding service

86

Rego Payment Architectures, Inc. (OTCPK:RPMT)

7374 Data processing and preparation

 

X

Operates as a technology company

87

Research Solutions, Inc. (OTCPK:RSSS)

7389 Business services

 

X

Provides annual licenses that allow customers to access and utilize features of cloud based software-as-a-service research intelligence platform

88

Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)

7389 Business services

 

X

An asset management and disposition company

89

root9B Holdings, Inc. (OTCPK:RTNB)

8742 Management consulting services ; 8740 Management and public relations services

 

X

Provides cyber security, regulatory risk mitigation, and energy and controls solutions

90

Select Interior Concepts, Inc. (NasdaqCM:SIC)

7389 Business services

 

X

Installs and distributes interior building products

91

ShiftPixy, Inc. (NasdaqCM:PIXY)

7361 Employment agencies ; 7360 Personnel supply services

 

X

Offers employment services to the restaurant, hospitality, and maintenance service industries

92

Sotheby's (NYSE:BID)

7389 Business services

 

X

Operates as an auctioneer of authenticated fine art

93

SPAR Group, Inc. (NasdaqCM:SGRP)

7389 Business services

X

 

Provides merchandising and marketing services

94

Spindle, Inc. (OTCPK:SPDL)

7374 Data processing and preparation

 

X

Provides merchant and consumer-facing commerce solutions

95

Square, Inc. (NYSE:SQ)

7374 Data processing and preparation

 

X

Provides payment and point-of-sale solutions

96

Staffing 360 Solutions, Inc. (NasdaqCM:STAF)

7363 Help supply services ; 7360 Personnel supply services

 

X

Engages in the acquisition and integration of staffing agencies

97

StarTek, Inc. (NYSE:SRT)

7389 Business services

X

 

Operates as a customer engagement business process outsourcing services

98

Steel Connect, Inc. (NasdaqGS:STCN)

7374 Data processing and preparation

X

 

Provides supply chain and logistics services

99

STWC Holdings, Inc. (OTCPK:STWC)

7389 Business services

X

 

Provides fulfillment services

100

The Caldwell Partners International Inc. (TSX:CWL)

7361 Employment agencies ; 7360 Personnel supply services

X

 

Provides executive search services

101

The Hackett Group, Inc. (NasdaqGS:HCKT)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Provides technology consulting services

102

The RMR Group Inc. (NasdaqCM:RMR)

8741 Management services ; 8740 Management and public relations services

X

 

Provides business and property management services

103

Total System Services, Inc. (NYSE:TSS)

7389 Business services

 

X

Provides electronic payment processing services

104

TriNet Group, Inc. (NYSE:TNET)

7374 Data processing and preparation

 

X

Provides human resources solutions

105

TrueBlue, Inc. (NYSE:TBI)

7363 Help supply services ; 7360 Personnel supply services

 

X

Provides temporary blue-collar staffing services

106

TSS, Inc. (OTCPK:TSSI)

8741 Management services ; 8740 Management and public relations services

 

X

Provides services to support mission-critical facilities and information infrastructure

107

TTEC Holdings, Inc. (NasdaqGS:TTEC)

7389 Business services

 

X

Designs and provides customer experience solutions

108

TurnKey Capital, Inc. (OTCPK:TKCI)

8721 Accounting, auditing, and bookkeeping ; 8720 Accounting, auditing, and bookkeeping services

 

X

Involved in money lending

109

Vectrus, Inc. (NYSE:VEC)

8740 Management and public relations services

X

 

Provides facility and logistics, and information technology and network communication services

110

Vegalab, Inc. (OTCPK:VEGL)

7389 Business services

 

X

Engages in the citrus packing business

111

VersaPay Corporation (TSXV:VPY)

7374 Data processing and preparation

 

X

A financial technology company

112

Volt Information Sciences, Inc. (AMEX:VISI)

7363 Help supply services ; 7360 Personnel supply services

 

X

Provides IT infrastructure services

113

Wall Street Media Co., Inc. (OTCPK:WSCO)

8742 Management consulting services ; 8740 Management and public relations services

X

 

Provides consulting services to entities looking to merge with or acquire or otherwise consult with third party entities

114

Western Pacific Trust Company (TSXV:WP)

7389 Business services

 

X

A non-deposit-taking independent trust company

115

WEX Inc. (NYSE:WEX)

7374 Data processing and preparation

 

X

Provides corporate card payment solutions

116

Wizard Entertainment, Inc. (OTCPK:WIZD)

7389 Business services

 

X

Produces pop culture and live multimedia conventions (Comic Cons) in N. America

117

Worldpay, Inc. (NYSE:WP)

7374 Data processing and preparation

X

 

Provides electronic payment processing services


Appendix 2: Management & Back Office Services Selected Comparables' Business Descriptions and Financial Data

ASGN Incorporated

FY December 31

2018

2017

2016

Average

Net Sales

3,399.8

2,625.9

2,440.4

2,822.0

Cost Of Goods Sold

2,376.1

1,775.9

1,645.2

1,932.4

Gross Profit

1,023.7

850.1

795.2

889.6

Operating Expenses

746.9

621.2

599.5

655.9

Operating Income

276.7

228.8

195.7

233.8

Profit Level Indicator: ROTC

8.9%

9.5%

8.7%

9.0%

In USD Millions

 

 

 

 

CIQ Business Description:

ASGN Incorporated provides information technology (IT) and professional staffing services in the technology, digital, creative, engineering, and life sciences fields across commercial and government sectors in the United States and internationally. The company operates through Apex, Oxford, and ECS segments. The Apex segment offers technical, scientific, digital, and creative services and solutions for contract, contract-to-hire, and permanent placement positions to Fortune 1000 and mid-market clients. The Oxford segment provides specialized staffing and permanent placement services in the areas of technical, digital, engineering, and life sciences resources and consulting in various skill and geographic markets. The ECS Segment delivers advanced solutions in cloud, cyber security, artificial intelligence, machine learning, software development, IT modernization, and science and engineering, as well as focuses on federal government activities. The company was formerly known as On Assignment, Inc. and changed its name to ASGN Incorporated in April 2018. ASGN Incorporated was founded in 1985 and is headquartered in Calabasas, California.engineering, and regulatory and compliance consultants to clients for temporary assignments; provides permanent placements in engineering, technology, sales, executive, financial, accounting, scientific, legal, and operations positions; and offers locally-based contract and permanent life science professionals to clients in biotechnology, pharmaceutical, food and beverage, personal care, chemical, medical device, automotive, municipal, education and environmental industries. The company was founded in 1985 and is headquartered in Calabasas, California


Barrett Business Services, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

940.7

920.4

840.6

900.6

Cost Of Goods Sold

347.0

357.2

337.2

347.1

Gross Profit

593.7

563.2

503.4

553.4

Operating Expenses

556.7

533.3

474.5

521.5

Operating Income

37.0

29.9

28.9

32.0

Profit Level Indicator: ROTC

4.1%

3.4%

3.6%

3.7%

In USD Millions

CIQ Business Description:

Barrett Business Services, Inc. provides business management solutions, such as human resource outsourcing and professional management consulting for small and medium-sized businesses in the United States. The company offers professional employer services under which it enters into a client services agreement to become a co-employer of the client's existing workforce, assuming responsibility for payroll, payroll taxes, workers' compensation coverage, and certain other administration functions. It also provides staffing and recruiting services, such as on-demand or short-term staffing assignments, contract staffing, long-term or indefinite-term on-site management, and direct placement. The company serves electronics manufacturers, various light-manufacturing industries, agriculture-based companies, transportation and shipping enterprises, food processing, telecommunications, public utilities, general contractors in various construction-related fields, and professional services firms. Barrett Business Services, Inc. was founded in 1965 and is headquartered in Vancouver, Washington.


CBIZ, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

922.0

855.3

799.8

859.1

Cost Of Goods Sold

790.3

755.6

697.7

747.9

Gross Profit

131.7

99.8

102.1

111.2

Operating Expenses

39.2

33.3

36.3

36.3

Operating Income

92.5

66.5

65.8

74.9

Profit Level Indicator: ROTC

11.2%

8.4%

9.0%

9.6%

In USD Millions

 

 

 

 

CIQ Business Description:

CBIZ, Inc., a diversified services company, through its subsidiaries, provides professional business services, products, and solutions to businesses, individuals, governmental entities, and not-for-profit enterprises in the United States and Canada. The company offers its integrated services through four practice groups: Financial Services, Employee Services, Medical Management Professionals, and National Practices. The Financial Services practice group offers accounting, tax, financial advisory, valuation, litigation support, government health care consulting, and risk and real estate advisory services. The Employee Services practice group provides employee benefits, property and casualty, retirement plan, payroll, life insurance, human capital, compensation consulting, recruiting, and actuarial services. The Medical Management Professionals practice group offers coding and billing, accounts receivable management, and full practice management services for hospital-based physicians primarily in the practice of radiology, emergency medicine, anesthesiology, and pathology. The National Practices practice group provides managed networking and hardware, health care consulting, and mergers and acquisitions services. CBIZ, Inc. was founded in 1987 and is headquartered in Cleveland, Ohio.


CRA International, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

417.6

370.1

324.8

370.8

Cost Of Goods Sold

289.4

257.7

227.4

258.2

Gross Profit

128.2

112.4

97.4

112.7

Operating Expenses

99.5

94.6

78.5

90.9

Operating Income

28.7

17.8

18.9

21.8

Profit Level Indicator: ROTC

7.4%

5.1%

6.2%

6.2%

In USD Millions

 

 

 

CIQ Business Description:

CRA International, Inc., doing business as Charles River Associates, provides economic, financial, and management consulting services primarily in the United States, the United Kingdom, and internationally. It advises clients on economic and financial matters pertaining to litigation and regulatory proceedings; and guides corporations through critical business strategy and performance-related issues. The company offers consulting services, such as research and analysis, expert testimony, and support in litigation and regulatory proceedings in various areas of finance, accounting, economics, insurance, and forensic accounting and investigations to corporate clients and attorneys. It also provides consulting services related to class certification, damages analysis, expert reports and testimony, regulatory analysis, strategy development, valuation of tangible and intangible assets, risk management, and transaction support to law firms, businesses, and government agencies. In addition, the company offers management consulting services, including strategy development, performance improvement, corporate strategy and portfolio analysis, market demand estimation, new product pricing strategies, intellectual property and other assets, assessment of competitors' actions assessment, and new sources of supply analysis. It serves customers in banking and capital markets, chemicals and industrials, consumer products, energy and utilities, financial services, health care, insurance, life sciences, manufacturing, media, mining, metals and materials, oil and gas, real estate, retail, sports, telecommunications, and transportation industries. CRA International, Inc. was founded in 1965 and is headquartered in Boston, Massachusetts.

FTI Consulting, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

2,027.9

1,807.7

1,810.4

1,882.0

Cost Of Goods Sold

1,328.1

1,215.6

1,210.8

1,251.5

Gross Profit

699.8

592.2

599.6

630.5

Operating Expenses

473.3

440.3

444.9

452.8

Operating Income

226.5

151.9

154.8

177.7

Profit Level Indicator: ROTC

12.6%

9.2%

9.3%

10.4%

In USD Millions

 

 

 

 

CIQ Business Description:

FTI Consulting, Inc. operates as a business advisory firm enabling organizations to protect enterprise values in complex economic, legal, and regulatory environments worldwide. It operates in five segments: Corporate Finance/Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology, and Strategic Communications. The Corporate Finance/Restructuring segment provides restructuring and turnaround, bankruptcy support, interim management, transaction advisory, performance improvement, private equity sponsor, and real estate and financial advisory services. The Forensic and Litigation Consulting segment offers forensic accounting and advisory; global risk and investigations practice; dispute advisory; intellectual property related; civil trial; construction related dispute resolution; financial and data enterprise analysis; and compliance, monitoring, and receivership services, as well as health solutions. The Economic Consulting segment provides financial, economic, and econometric consulting services; business valuation and expert testimony services; international arbitration; economic and statistical analyses services for labor and employment issues; and offers services related to public policy and regulated industries, as well as securities litigation and risk management services. The Technology segment offers computer forensics and investigations, discovery consulting, and e-discovery software and services. The Strategic Communications segment provides advice and consulting services relating to financial and corporate communications, public affairs, creative engagement, and strategy consulting and research. FTI Consulting, Inc. was founded in 1982 and is headquartered in West Palm Beach, Florida.

Huron Consulting Group Inc.

FY December 31

2018

2017

2016

Average

Net Sales

795.1

732.6

726.3

751.3

Cost Of Goods Sold

521.5

454.8

437.6

471.3

Gross Profit

273.6

277.8

288.7

280.0

Operating Expenses

220.0

223.1

206.9

216.6

Operating Income

53.6

54.7

81.8

63.4

Profit Level Indicator: ROTC

7.2%

8.1%

12.7%

9.2%

In USD Millions

 

 

 

CIQ Business Description:

Huron Consulting Group Inc. provides operational and financial consulting services in the United States. It operates in five segments: Huron Healthcare, Huron Legal, Huron Education and Life Sciences, Huron Business Advisory, and All Other. The Huron Healthcare segment provides consulting services related to hospital or healthcare organization performance improvement, revenue cycle improvement, clinical quality and care variation, labor productivity, non-labor cost management, information technology, patient flow improvement, and physician practice management services for hospitals, integrated health systems, academic medical centers, and physician practices. The Huron Legal segment provides advisory and business services focusing on strategic and management consulting, cost management, and technology and information management, including matter management, records management, document review, and discovery services to assist law departments of corporations and law firms. The Huron Education and Life Sciences segment develops and implements performance improvement, technology, and research enterprise solutions related to financial management, strategy, operational and organizational effectiveness, research administration, and regulatory compliance for higher education, academic medical centers, and pharmaceutical and medical device industries, as well as law firms. The Huron Business Advisory segment offers financial advisory, interim management, operational improvement, capital advisory, and valuation services, as well as assists companies that are in transition, creditors, owners, and investors. The All Other segment is involved in public sector consulting practice, and foreign healthcare and strategic consulting operations in the Middle East. The company was founded in 2002 and is headquartered in Chicago, Illinois.


ICF International, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

1,338.0

1,229.2

1,185.1

1,250.7

Cost Of Goods Sold

857.5

771.7

745.1

791.5

Gross Profit

480.5

457.4

440.0

459.3

Operating Expenses

387.0

370.3

357.2

371.5

Operating Income

93.5

87.1

82.8

87.8

Profit Level Indicator: ROTC

7.5%

7.6%

7.5%

7.6%

In USD Millions

 

 

 

 

CIQ Business Description:

ICF International, Inc. provides management, technology, and policy professional services to government and commercial customers in the United States and internationally. The company primarily offers advisory services, which include needs and market assessments, policy analysis, strategy and concept development, organizational assessment and strategy, enterprise architecture, and program design. It also provides implementation services to manage technological, organizational, and management solutions for clients, including information technology solutions, project and program management, project delivery, strategic communications, and training. In addition, the company offers evaluation and improvement services consisting of program evaluations, continuous improvement initiatives, performance management, benchmarking, and return-on-investment analyses. It serves energy, environment, and infrastructure; health, social programs, and consumer/financial; and public safety and defense markets. The company was formerly known as ICF Consulting Group Holdings, LLC and changed its name to ICF International, Inc. in 2006. ICF International, Inc. was founded in 1969 and is headquartered in Fairfax, Virginia.


Insperity, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

3,828.5

3,300.2

2,941.3

3,356.7

Cost Of Goods Sold

3,146.6

2,727.5

2,449.7

2,774.6

Gross Profit

681.9

572.7

491.6

582.1

Operating Expenses

493.6

440.8

385.3

439.9

Operating Income

188.3

131.9

106.3

142.2

Profit Level Indicator: ROTC

5.2%

4.2%

3.7%

4.4%

In USD Millions

 

 

 

CIQ Business Description:

Insperity, Inc. provides an array of human resources (HR) and business solutions to help enhance business performance for small and medium-sized businesses. The company provides its HR business offering through its Workforce Optimization solution, which encompasses a range of human resource functions, including payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management, and training and development services. It also offers human capital management, payroll services, time and attendance, performance management, organizational planning, recruiting services, employment screening, financial services, expense management, retirement services, and insurance services through desktop applications and software as a service delivery models. Insperity, Inc. has a strategic alliance with GrowthForce LLC. The company was formerly known as Administaff, Inc. and changed its name to Insperity, Inc. in March 2011. Insperity, Inc. was founded in 1986 and is headquartered in Kingwood, Texas.


Kelly Services, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

5,513.9

5,374.4

5,276.8

5,388.4

Cost Of Goods Sold

4,541.7

4,420.3

4,370.5

4,444.2

Gross Profit

972.2

954.1

906.3

944.2

Operating Expenses

884.8

868.4

839.7

864.3

Operating Income

87.4

85.7

66.6

79.9

Profit Level Indicator: ROTC

1.6%

1.6%

1.3%

1.5%

In USD Millions

 

 

 

 

CIQ Business Description:

Kelly Services, Inc., together with its subsidiaries, provides workforce solutions to various industries worldwide. The company operates in seven segments: Americas Commercial, Americas Professional and Technical, EMEA Commercial, EMEA Professional and Technical, APAC Commercial, APAC Professional and Technical, and Outsourcing and Consulting Group. It offers trained employees who work in word processing, data entry, and clerical and administrative support roles; staff for contact centers, technical support hotlines, and telemarketing units; instructional and non-instructional employees for schools; support staff for seminars, sales, and trade shows; assemblers, quality control inspectors, and technicians for electronic assembly; maintenance workers, material handlers, and assemblers; and temporary and full-time placement services, as well as direct-hire placement and vendor on-site management services. The company also provides scientific and clinical research workforce solutions; engineering professionals and information technology specialists across various disciplines; creative services, finance and accounting, healthcare, and legal professionals; and talent management solutions to the U.S. federal government. In addition, it offers staffing services for catering and hospitality, industrial, human resources, sales and marketing, procurement, and general management areas. Further, the company provides integrated talent management solutions, including contingent workforce outsourcing, business process outsourcing, recruitment process outsourcing, independent contractor solutions, payroll process outsourcing, career transition and organizational effectiveness, and executive search. Kelly Services, Inc. was founded in 1946 and is headquartered in Troy, Michigan.

Kforce Inc.

FY December 31

2018

2017

2016

Average

Net Sales

1,418.4

1,357.9

1,319.7

1,365.3

Cost Of Goods Sold

999.7

949.9

911.2

953.6

Gross Profit

418.6

408.1

408.5

411.7

Operating Expenses

337.4

340.0

343.9

340.4

Operating Income

81.2

68.1

64.6

71.3

Profit Level Indicator: ROTC

6.1%

5.3%

5.1%

5.5%

In USD Millions

 

 

 

CIQ Business Description:

Kforce Inc., together with its subsidiaries, provides professional and technical staffing services and solutions in the United States. It operates through four segments: Technology, Finance and Accounting, Health Information Management, and Government Solutions. The Technology segment offers temporary staffing and permanent placement services focusing on information technology comprising systems/applications programmers and developers, senior-level project managers, systems analysts, enterprise data management, e-business, and networking technicians, as well as healthcare and financial services, and government integrators. The Finance and Accounting segment provides temporary staffing and permanent placement services in the areas of general accounting, business analysis, accounts payable, accounts receivable, financial analysis and reporting, taxation, management consultants, budget preparation and analysis, mortgage and loan processing, cost analysis professional administrative, credit and collections, audit services, and systems and controls analysis and documentation. The Health Information Management segment offers temporary staffing services consisting of acute care facilities, hospitals, physician clinics, software providers, and insurance companies, as well as in the health information technology, the revenue life cycle, and health information management areas. The Government Solutions segment provides technology, and finance and accounting professionals to the federal government; and integrated business solutions in information technology, healthcare informatics, data and knowledge management, research and development, financial management and accounting, and other areas. Kforce Inc. was founded in 1962 and is headquartered in Tampa, Florida.

ManpowerGroup Inc.

FY December 31

2018

2017

2016

Average

Net Sales

21,991.2

21,034.3

19,654.1

20,893.2

Cost Of Goods Sold

18,412.2

17,549.7

16,320.3

17,427.4

Gross Profit

3,579.0

3,484.6

3,333.8

3,465.8

Operating Expenses

2,745.8

2,661.9

2,583.0

2,663.6

Operating Income

833.2

822.7

750.8

802.2

Profit Level Indicator: ROTC

3.9%

4.1%

4.0%

4.0%

In USD Millions

 

 

 

 

CIQ Business Description:

ManpowerGroup Inc. provides workforce solutions and services. The company offers permanent, temporary, and contract recruitment services; assessment and selection services; training and development services; outsourcing services related to human resources functions primarily in the areas of large-scale recruiting and workforce-intensive initiatives; and workforce consulting services. It also provides professional resourcing and project-based workforce solutions in the information technology, finance, and engineering fields; talent and career management workforce solutions; and talent based outsourcing services, managed services, recruitment process outsourcing services, borderless talent solutions, and strategic workforce consulting services. The company provides its services through a network of approximately 3,500 offices in 80 countries across various industry sectors, and small and medium-sized enterprises, as well as local, multinational, and global companies. It operates in the Americas, northern Europe, southern Europe, and the Asia Pacific Middle East region. The company was formerly known as Manpower Inc. and changed its name to ManpowerGroup Inc. in March 2011. ManpowerGroup Inc. was founded in 1948 and is headquartered in Milwaukee, Wisconsin.


Navigant Consulting, Inc.

FY August 31

2018

2017

2016

Average

Net Sales

672.7

636.9

619.8

643.1

Cost Of Goods Sold

477.3

440.4

414.6

444.1

Gross Profit

195.4

196.5

205.2

199.1

Operating Expenses

164.9

166.5

167.7

166.4

Operating Income

30.6

30.0

37.5

32.7

Profit Level Indicator: ROTC

4.8%

4.9%

6.4%

5.4%

In USD Millions

 

 

 

CIQ Business Description:

Navigant Consulting, Inc., a consulting company, provides dispute, investigative, economic, operational, risk management, and financial and regulatory advisory solutions to companies, legal counsel, and governmental agencies worldwide. The company's Disputes, Investigations & Economics segment provides accounting, financial, and economic analysis; and discovery support, data management, and analytics on a range of legal and business issues, including disputes, investigations, and regulatory matters. This segment serves in-house counsel and law firms, accounting firms, corporate boards, and government agencies. Its Financial, Risk & Compliance segment offers strategic, operational, valuation, risk management, investigative, and compliance consulting to regulated financial services industry, including financial and insurance institutions. This segment also provides anti-corruption solutions, anti-money laundering, and valuation and restructuring consulting to various industries. The company's Healthcare segment offers strategy consulting, revenue cycle management, performance improvement, program management, physician practice management and outsourcing, and technology solutions to health systems, physician practice groups, health insurance providers, governmental agencies, and life sciences companies. Its Energy segment provides management advisory services to existing and prospective owners of energy supply and delivery assets, which enable them to evaluate, plan, develop, and enhance the value of their investments within evolving market and regulatory structures. It also provides energy efficiency and energy related market research services. This segment serves utilities, independent power producers, financial entities, law firms, regulators, and energy equipment providers. Navigant Consulting, Inc. was founded in 1983 and is headquartered in Chicago, Illinois.


Resources Connection, Inc.

FY May 30

2018

2017

2016

Average

Net Sales

0.0

654.1

583.4

412.5

Cost Of Goods Sold

0.0

408.1

362.1

256.7

Gross Profit

0.0

246.1

221.3

155.8

Operating Expenses

0.0

201.4

181.7

127.7

Operating Income

0.0

44.6

39.6

28.1

Profit Level Indicator: ROTC

 

7.3%

7.3%

7.3%

In USD Millions

 

 

 

 

CIQ Business Description:

Resources Connection, Inc. provides consulting services. It offers finance and accounting services, such as financial analyses, carve-outs and divestitures, merger and acquisition due diligence, budgeting and forecasting, audit preparation, public-entity reporting, tax-related projects, initial public offering assistance, and assistance in the preparation or restatement of financial statements. The company also offers information management services, which include financial system/enterprise resource planning implementation and post implementation optimization; corporate advisory, strategic communications, and restructuring services; and services in the areas of corporate governance, risk management, internal audit co-sourcing, and compliance. In addition, it offers supply chain management services in the areas of strategic sourcing, contract negotiations and purchasing strategy, and Conflict Minerals compliance; healthcare solutions; actuarial support services for pension and life insurance companies; and human capital services, such as change management, and compensation program design and implementation. Further, the company provides legal and regulatory services, which comprise providing attorneys, paralegals, and contract managers to assist clients with project-based, secondment, or peak period needs. Additionally, it offers policyIQ, a cloud-based governance, risk, and compliance (GRC) software application that enables the focused management of a range of GRC processes, such as risk assessments, Sarbanes compliance, Foreign Corrupt Practices Act, policy and procedure management, internal audit programs, anti-corruption compliance, and Conflict Minerals compliance. The company has operations in North America, Europe, and the Asia Pacific. Resources Connection, Inc. was founded in 1996 and is headquartered in Irvine, California.


Robert Half International Inc.

FY December 31

2018

2017

2016

Average

Net Sales

5,800.3

5,266.8

5,250.4

5,439.2

Cost Of Goods Sold

3,390.3

3,103.0

3,089.7

3,194.3

Gross Profit

2,410.0

2,163.8

2,160.7

2,244.8

Operating Expenses

1,822.8

1,648.1

1,607.5

1,692.8

Operating Income

587.2

515.7

553.2

552.1

Profit Level Indicator: ROTC

11.3%

10.9%

11.8%

11.3%

In USD Millions

 

 

 

CIQ Business Description:

Robert Half International Inc. provides staffing and risk consulting services in North America, South America, Europe, Asia, and Australia. The company operates through three segments: Temporary and Consultant Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services. It offers temporary staffing in the accounting, tax, and finance areas; information technology contract consultants; and senior level project professionals in accounting and finance fields, such as chief financial officers, controllers, and senior financial analysts for financial systems conversions, expansion into new markets, business process reengineering, and post-merger financial consolidation. The company also places temporary and full-time office and administrative personnel ranging from word processors to office managers; full-time accounting, financial, tax, and banking personnel; and full-time employees in the areas, ranging from multiple platform systems integration to end-user support, including specialists in Web development, networking, application development, systems integration, database design, security and business continuity, and desktop support; and temporary and full-time employees in attorney, paralegal, legal administrative, and legal secretarial positions. In addition, it is involved in serving clients in the areas of advertising, marketing, and Web design; placing project consultants in various positions, including creative directors, graphics designers, Web content developers, Web designers, media buyers, and public relations specialists; and the provision of experts specializing in risk, advisory, and transactional services. The company markets its staffing services to clients, as well as to employment candidates. Robert Half International Inc. was founded in 1948 and is headquartered in Menlo Park, California.

Sykes Enterprises, Incorporated

FY December 31

2018

2017

2016

Average

Net Sales

1,625.7

1,586.0

1,460.0

1,557.2

Cost Of Goods Sold

1,020.0

1,003.2

919.6

980.9

Gross Profit

605.7

582.8

540.4

576.3

Operating Expenses

513.3

490.6

445.8

483.3

Operating Income

92.4

92.2

94.6

93.1

Profit Level Indicator: ROTC

6.0%

6.2%

6.9%

6.4%

In USD Millions

CIQ Business Description:

Sykes Enterprises, Incorporated, together with its subsidiaries, provides outsourced customer contact management solutions and services in the business process outsourcing arena. Its customer care services include product information requests, describing product features, activating customer accounts, resolving complaints, cross-selling/up-selling, handling billing inquiries, changing addresses, claims handling, ordering/reservations, prequalification and warranty management, providing health information, and roadside assistance. The company's technical support services comprise handling inquiries regarding hardware, software, communications services, communications equipment, Internet access technology, and Internet portal usage; and customer acquisition services consist of inbound and outbound up-selling of its clients' products and services. It also provides technical staffing services and outsourced corporate help desk services; and fulfillment services, such as order and payment processing, inventory control, product delivery, and product returns handling. The company offers its outsourced customer contact management services through phone, e-mail, social media, text messaging, chat, and digital self-service support. Sykes Enterprises, Incorporated provides its services to companies, medium-sized businesses, and public institutions in the communications, financial services, technology/consumer, transportation and leisure, healthcare, and other industry verticals. It operates in the United States, Canada, Latin America, Australia, the Asia Pacific Rim, Europe, the Middle East, and Africa. Sykes Enterprises, Incorporated was founded in 1977 and is headquartered in Tampa, Florida.

Appendix 3: Manufacturing Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar products

Different functional activities/markets

Subsidiary

Other

Rejection detail

1

3M Company (NYSE:MMM)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

A diversified technology company

2

A.H. Belo Corporation (NYSE:AHC)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Operates as a local news and information publishing company

3

ACCO Brands Corporation (NYSE:ACCO)

2700 Printing, publishing, and allied industries ; 2780 Blankbooks, looseleaf binders, and bookbinding and related work

 

X

 

 

Full-fledged manufacturer - manufactures, markets, and distributes office, school, and calendar products

4

Allied Security Innovations, Inc. (OTCPK:ADSV)

2670 Converted paper and paperboard products, except containers and boxes

X

 

 

 

Manufactures and distributes indicative and barrier security seals, security tapes, and related packaging security systems

5

American Biltrite Inc. (OTCPK:ABLT)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Produces and sells pressure-sensitive materials worldwide

6

Avery Dennison Corporation (NYSE:AVY)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Produces and sells pressure-sensitive materials worldwide

7

Bemis Company, Inc. (NYSE:BMS)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Full-fledged manufacturer - esigns, manufactures, and sells various branding and information solutions

8

Cascades Inc. (TSX:CAS)

2600 Paper and allied products

X

 

 

 

Produces, converts, and markets packaging and tissue products

9

CCL Industries Inc. (TSX:CCL.B)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

A specialty packaging company

10

Clearwater Paper Corporation (NYSE:CLW)

2600 Paper and allied products ; 2670 Converted paper and paperboard products, except containers and boxes

X

 

 

 

Produces and sells produces and sells private label tissue and bleached paperboard products

11

CSS Industries, Inc. (NYSE:CSS)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Engages in the design, manufacture, procurement, distribution, and sale of various occasion and seasonal social expression products primarily to mass market retailers

12

DATA Communications Management Corp. (TSX:DCM)

2700 Printing, publishing, and allied industries ; 2750 Commercial printing

 

X

 

 

Plans and executes business communications

13

Deluxe Corporation (NYSE:DLX)

2700 Printing, publishing, and allied industries ; 2780 Blankbooks, looseleaf binders, and bookbinding and related work

 

 

 

X

 

14

Fortress Global Enterprises Inc. (TSX:FGE)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Produces and sells dissolving pulp and security paper products

15

FP Newspapers Inc. (TSXV:FP)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Publishes, prints, and distributes daily and weekly newspapers

16

Freedom Leaf, Inc. (OTCPK:FRLF)

2700 Printing, publishing, and allied industries ; 2720 Periodicals: publishing, or publishing and printing

 

X

 

 

Engages in vertically-integrated hemp and cannabis media businesses

17

Gannett Co., Inc. (NYSE:GCI)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Operates as a multi-platform news and information company

18

Glacier Media Inc. (TSX:GVC)

2741 Miscellaneous publishing ; 2700 Printing, publishing, and allied industries; 2740 Miscellaneous publishing

 

X

 

 

Operates as an information and marketing solutions company

19

good natured Products Inc. (TSXV:GDNP)

2670 Converted paper and paperboard products, except containers and boxes

X

 

 

 

Designs, produces, and distributes bioplastics for use in packaging and durable product applications

20

Graphic Packaging Holding Company (NYSE:GPK)

2600 Paper and allied products

X

 

 

 

Provides paper-based packaging solutions to food, beverage, foodservice, and other consumer products companies

21

Greif, Inc. (NYSE:GEF)

2600 Paper and allied products

X

 

 

 

Produces and sells industrial packaging products

22

GVIC Communications Corp. (TSX:GCT)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

An information communications company

23

Houghton Mifflin Harcourt Company (NasdaqGS:HMHC)

2731 Book publishing ; 2700 Printing, publishing, and allied industries; 2730 Books

 

X

 

 

A learning company, provides curriculum, supplemental, and intervention solutions; and professional learning services

24

IDW Media Holdings, Inc. (OTCPK:IDWM)

2700 Printing, publishing, and allied industries ; 2720 Periodicals: publishing, or publishing and printing

 

X

 

 

Operates as an entertainment, and brochure and digital advertising distribution company

25

International Paper Company (NYSE:IP)

2600 Paper and allied products

X

 

 

 

Operates as a paper and packaging company

26

Intertape Polymer Group Inc. (TSX:ITP)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Full-fledged manufacturer - develops, manufactures, and sells various paper and film based pressure sensitive and water activated tapes

27

John Wiley & Sons, Inc. (NYSE:JW.A)

2700 Printing, publishing, and allied industries ; 2720 Periodicals: publishing, or publishing and printing

 

X

 

 

Operates as a research and learning company

28

Kimberly-Clark Corporation (NYSE:KMB)

2600 Paper and allied products

X

 

 

 

Manufactures and markets personal care, consumer tissue, and professional products

29

Lee Enterprises, Incorporated (NYSE:LEE)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Provides local news and information, and advertising services

30

Lingo Media Corporation (TSXV:LM)

2731 Book publishing ; 2700 Printing, publishing, and allied industries; 2730 Books

 

X

 

 

Develops, markets, and supports a suite of English language learning solutions

31

LSC Communications, Inc. (NYSE:LKSD)

2700 Printing, publishing, and allied industries ; 2750 Commercial printing

 

 

X

 

Operates independently of R.R. Donnelley & Sons Company as of October 1, 2016

32

Magellan Energy, Ltd. (OTCPK:MGLG)

2732 Book printing ; 2700 Printing, publishing, and allied industries; 2730 Books

 

X

 

 

Focuses on the development, acquisition, stimulation, and rehabilitation of small to medium-sized oil and gas properties

33

Matthews International Corporation (NasdaqGS:MATW)

2700 Printing, publishing, and allied industries ; 2790 Service industries for the printing trade

 

X

 

 

Provides brand solutions

34

Mercer International Inc. (NasdaqGS:MERC)

2600 Paper and allied products

X

 

 

 

Manufactures and sells northern bleached softwood Kraft (NBSK) pulp

35

Meredith Corporation (NYSE:MDP)

2700 Printing, publishing, and allied industries ; 2720 Periodicals: publishing, or publishing and printing

 

X

 

 

Operates as a media company

36

Multi-Color Corporation (NasdaqGS:LABL)

2700 Printing, publishing, and allied industries ; 2750 Commercial printing

 

X

 

 

Provides various label solutions

37

Neenah, Inc. (NYSE:NP)

2600 Paper and allied products

X

 

 

 

Offers filtration media for transportation, water, and other uses; saturated and unsaturated crepe, and flat paper tapes; and coated lightweight abrasive papers

38

New Media Investment Group Inc. (NYSE:NEWM)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Owns, operates, and invests in local media assets

39

News Corporation (NasdaqGS:NWSA)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

A media and information services company

40

P. H. Glatfelter Company (NYSE:GLT)

2600 Paper and allied products

X

 

 

 

Manufactures and sells engineered materials

41

Packaging Corporation of America (NYSE:PKG)

2600 Paper and allied products

X

 

 

 

Manufactures and sells containerboard and corrugated packaging products

42

Party City Holdco Inc. (NYSE:PRTY)

2670 Converted paper and paperboard products, except containers and boxes

 

X

 

 

Full-fledged manufacturer - designs, manufactures, sources, and distributes party supplies

43

Postmedia Network Canada Corp. (TSX:PNC.B)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Publishes daily and non-daily newspapers

44

Resolute Forest Products Inc. (NYSE:RFP)

2600 Paper and allied products

X

 

 

 

Offers virgin and recycled bleached Kraft

45

Scholastic Corporation (NasdaqGS:SCHL)

2731 Book publishing ; 2700 Printing, publishing, and allied industries; 2730 Books

X

 

 

 

Publishes and distributes children's books

46

Schweitzer-Mauduit International, Inc. (NYSE:SWM)

2600 Paper and allied products

X

 

 

 

Provides engineered solutions and advanced materials

47

Shutterfly, Inc. (NasdaqGS:SFLY)

2731 Book publishing ; 2700 Printing, publishing, and allied industries; 2730 Books

 

X

 

 

Manufactures and retails personalized products

48

Sonoco Products Company (NYSE:SON)

2600 Paper and allied products

X

 

 

 

Manufactures and sells industrial and consumer packaging products

49

The McClatchy Company (AMEX:MNI)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Publishes newspapers, and related digital and direct marketing products

50

The New York Times Company (NYSE:NYT)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Provides news and information for readers and viewers across various platforms

51

Torstar Corporation (TSX:TS.B)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Operates as a media company

52

Tribune Publishing Company (NasdaqGM:TPCO)

2711 Newspapers ; 2700 Printing, publishing, and allied industries; 2710 Newspapers: publishing, or publishing and printing

 

X

 

 

Publishes newspapers worldwide

53

Value Line, Inc. (NasdaqCM:VALU)

2741 Miscellaneous publishing ; 2700 Printing, publishing, and allied industries; 2740 Miscellaneous publishing

 

X

 

 

Produces and sells investment periodicals and related publications

54

Verso Corporation (NYSE:VRS)

2600 Paper and allied products

X

 

 

 

Offers coated freesheet and coated groundwood, specialty, packaging, inkjet and digital, supercalendered, and uncoated freesheet papers; and bleached and unbleached market kraft pulp to manufacture printing, writing, and tissue products

55

WestBond Enterprises Corporation (TSXV:WBE)

2670 Converted paper and paperboard products, except containers and boxes

X

 

 

 

Manufactures and sells disposable paper products for medical, hygienic, and industrial uses

56

WestRock Company (NYSE:WRK)

2600 Paper and allied products

X

 

 

 

Manufactures and sells paper and packaging solutions

57

Winpak Ltd. (TSX:WPK)

2670 Converted paper and paperboard products, except containers and boxes

 

 

X

 

Company is a subsidiary of W-Packaging Oy

58

Yellow Pages Limited (TSX:Y)

2741 Miscellaneous publishing ; 2700 Printing, publishing, and allied industries; 2740 Miscellaneous publishing

 

X

 

 

Operates as a digital media and marketing solutions company

Appendix 4: Manufacturing Selected Comparables' Business Description and Financials

Domtar Corporation

FY December 31

2018

2017

2016

Average

Net Sales

5,455.0

5,148.0

5,090.0

5,231.0

Cost Of Goods Sold

4,303.0

4,145.0

4,051.0

4,166.3

Gross Profit

1,152.0

1,003.0

1,039.0

1,064.7

Operating Expenses

741.0

757.0

752.0

750.0

Operating Income

411.0

246.0

287.0

314.7

Profit Level Indicator: ROTC

8.1%

5.0%

6.0%

6.4%

In USD Millions

 

 

 

 

CIQ Business Description:

Domtar Corporation designs, manufactures, markets, and distributes various communication papers, specialty and packaging papers, and absorbent hygiene products in the United States, Canada, Europe, Asia, and internationally. It operates in two segments, Pulp and Paper, and Personal Care. The company offers business papers, including copy and electronic imaging papers for use with inkjet and laser printers, photocopiers, and plain-paper fax machines, as well as computer papers, preprinted forms, and digital papers for office and home use. It also provides commercial printing and publishing papers, such as offset papers and opaques for sheet and roll fed offset presses; publishing papers comprising tradebook and lightweight uncoated papers for publishing textbooks, dictionaries, catalogs, magazines, hard cover novels, and financial documents; and base papers that are converted into envelopes, tablets, business forms, and data processing/computer forms. In addition, the company offers papers for thermal and flexible packaging, food and medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, label, and other coating and laminating applications; and papers for industrial and specialty applications that include carrier and treated papers, security papers, and specialized printing and converting applications. Further, it provides softwood, fluff, and hardwood Kraft products for various end products. Additionally, the company offers absorbent hygiene products, which comprise adult incontinence products under the Attends, IncoPack, Indasec, and Reassure brand; and branded and private label briefs, protective underwear, underpads, pads, and washcloths, as well as baby diapers, youth pants, and infant training pants for healthcare, retail, and direct-to-consumer channels. It serves merchants, retail outlets, stationers, printers, publishers, converters, and end-users. The company was founded in 1848 and is based in Fort Mill, South Carolina.

Ennis, Inc.

FY February 28

2018

2017

2016

Average

Net Sales

400.8

370.2

356.9

375.9

Cost Of Goods Sold

277.4

253.0

252.2

260.8

Gross Profit

123.4

117.2

104.7

115.1

Operating Expenses

73.5

69.7

63.9

69.1

Operating Income

49.9

47.5

40.8

46.0

Profit Level Indicator: ROTC

14.2%

14.7%

12.9%

14.0%

In USD Millions

CIQ Business Description:

Ennis, Inc. designs, manufactures, and sells business forms and other business products in the United States. The company offers snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, and pressure sensitive products under the Ennis, Royal Business Forms, Block Graphics, Specialized Printed Forms, 360 Custom Labels, ColorWorx, Enfusion, Uncompromised Check Solutions, VersaSeal, Ad Concepts, FormSource Limited, Star Award Ribbon Company, Witt Printing, B&D Litho, Genforms, PrintGraphics, Calibrated Forms, PrintXcel, Printegra, Curtis Business Forms, Falcon Business Forms, Forms Manufacturers, Mutual Graphics, TRI-C Business Forms, Major Business Systems, Independent Printing, Hoosier Data Forms, and Hayes Graphics brand names. It also provides point of purchase advertising for large franchise and fast food chains, as well as kitting and fulfillment under the Adams McClure brand; presentation and document folders under the Admore, Folder Express, and Independent Folders brand names; custom printed labels, custom, and stock tags products under Ennis Tag & Label brand; and custom and stock tags and labels under the Atlas Tag & Label, Kay Toledo Tag, and Special Service Partners brand names. In addition, the company offers custom and imprinted envelopes under the Trade Envelopes, Block Graphics, Wisco, and National Imprint Corporation brand names; and financial and security documents under the Northstar and General Financial Supply brand names. It sells its products directly, as well as through private printers and independent distributors to large banking organizations. The company was formerly known as Ennis Business Forms, Inc. Ennis, Inc. was founded in 1909 and is headquartered in Midlothian, Texas.

Impreso, Inc.

FY August 31

2018

2017

2016

Average

Net Sales

101.3

87.0

89.0

92.5

Cost Of Goods Sold

89.1

78.3

81.2

82.9

Gross Profit

12.3

8.8

7.8

9.6

Operating Expenses

9.7

8.3

7.3

8.4

Operating Income

2.6

0.5

0.5

1.2

Profit Level Indicator: ROTC

2.6%

0.5%

0.6%

1.3%

In USD Millions

 

 

 

 

CIQ Business Description:

Impreso, Inc. manufactures and distributes various paper and film products for commercial and home use in the United States and internationally. Its products include engineering rolls, wide format ink jet media, desk top ink jet media, computer paper, jumbo laser rolls, laser cut sheets, thermal fax paper, copy paper, POS, add rolls, ribbons, cleaning cards, and laser and inkjet cartridges, as well as labels, tags, and tickets. The company also produces custom private label bottled water; and operates an online web reference directory. It manufactures and distributes its products under the Alliance label, Impreso label, OEM brands, and other private labels. Impreso, Inc. markets its products to dealers and other resellers. The company was founded in 1976 and is headquartered in Coppell, Texas.


Quad/Graphics, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

4,193.7

4,131.4

4,329.5

4,218.2

Cost Of Goods Sold

3,429.3

3,259.4

3,394.8

3,361.2

Gross Profit

764.4

872.0

934.7

857.0

Operating Expenses

603.7

651.7

738.7

664.7

Operating Income

160.7

220.3

196.0

192.3

Profit Level Indicator: ROTC

4.0%

5.6%

4.7%

4.8%

In USD Millions

CIQ Business Description:

Quad/Graphics, Inc. provides marketing solutions worldwide. The company operates through United States Print and Related Services, and International segments. It offers printing services, such as retail inserts, publications, catalogs, special interest publications, journals, direct mail, books, directories, in-store marketing and promotion, packaging, newspapers, custom print products, and other commercial and specialty printed products; and paper procurement services. The company also provides marketing and other services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital and print execution, and logistics, as well as manufactures ink. It serves various blue chip companies that operate in various industries; and businesses and consumers comprising retailers, publishers, and direct marketers. Quad/Graphics, Inc. was founded in 1971 and is headquartered in Sussex, Wisconsin.

R.R. Donnelley & Sons Company

FY December 31

2018

2017

2016

Average

Net Sales

6,800.2

6,939.6

6,833.0

6,857.6

Cost Of Goods Sold

5,544.8

5,623.4

5,484.3

5,550.8

Gross Profit

1,255.4

1,316.2

1,348.7

1,306.8

Operating Expenses

1,011.6

1,051.8

1,098.5

1,054.0

Operating Income

243.8

264.4

250.2

252.8

Profit Level Indicator: ROTC

3.7%

4.0%

3.8%

3.8%

In USD Millions

 

 

 

 

CIQ Business Description:

R.R. Donnelley & Sons Company enables organizations to communicate by creating, managing, producing, distributing, and processing content on behalf of its customers. The company operates through Publishing and Retail Services, Variable Print, Strategic Services, and International segments. Its product offerings primarily consist of magazines, catalogs, retail inserts, commercial and digital print, books, financial print, statement printing, direct mail, labels, office products, packaging, forms, manuals, and other related products. The company's service offerings primarily comprise logistics, EDGAR-related and eXtensible Business Reporting Language financial services, business outsourcing services, and digital and creative solutions. It also offers outsourcing capabilities, including product configuration, customized kitting, and order fulfillment for technology, medical device, and other companies. The company distributes its products to end-users through the United States or foreign postal services, as well as through retail channels, electronically, or by direct shipment to customer facilities. It has operations in Europe, Asia, and North America. R.R. Donnelley & Sons Company was formerly known as CMCo. The company was founded in 1864 and is based in Chicago, Illinois.


Supremex Inc.

FY December 31

2018

2017

2016

Average

Net Sales

143.0

142.8

119.5

135.1

Cost Of Goods Sold

107.2

103.9

85.2

98.8

Gross Profit

35.8

38.9

34.3

36.3

Operating Expenses

21.5

21.8

18.5

20.6

Operating Income

14.3

17.1

15.8

15.7

Profit Level Indicator: ROTC

11.1%

13.6%

15.2%

13.2%

In USD Millions

 

 

 

 

CIQ Business Description:

Supremex Inc. manufactures and sells envelopes and related products in North America. It offers custom envelopes, stock envelopes, digital window envelopes, high efficiency envelopes, Extended Envelope, EnviroSafe, self-seal envelopes, and integrated envelopes. The company also provides packaging products, such as Conformer corrugate mailers, Conformer envelopes, auto boxes, tear resistant PaperTyger mailers, courier mailers, Conformer presentation folders, Conformer heavy duty mailers, Conformer paperboard mailers, Conformer lightweight kraft mailers, Enviro-logiX poly mailers, and Enviro-logiX bubble mailers. In addition, it offers custom labels, repositionable labels, and affixing; and products, such as repositionable notes, membership cards, photo packaging, medical and file folders, RFID protective envelopes, and X-ray envelopes. The company sells stock and custom envelopes directly and through a network of distributors to financial institutions, large and small businesses, government organizations, commercial printers, and mailing houses primarily in Western Canada. Supremex Inc. was founded in 1977 and is headquartered in LaSalle, Canada.


Transcontinental Inc.

FY October 31

2018

2017

2016

Average

Net Sales

2,001.5

1,559.9

1,507.3

1,689.6

Cost Of Goods Sold

1,560.3

1,233.6

1,198.4

1,330.8

Gross Profit

441.2

326.3

308.9

358.8

Operating Expenses

145.3

101.7

97.0

114.7

Operating Income

295.9

224.6

211.9

244.1

Profit Level Indicator: ROTC

17.4%

16.8%

16.4%

16.9%

In USD Millions

 

 

 

CIQ Description:

Transcontinental Inc. engages in print, flexible packaging, publishing, and digital media operations in Canada and the United States. The company operates through Printing and Packaging Sector, and Media Sector segments. The Printing and Packaging Sector segment prints retail flyers, magazines, newspapers, color books, and personalized and mass marketing products; provides pre-media and geo-targeted door-to-door distribution services; and produces and sells flexible packaging solutions. The Media Sector segment is involved in printing and digital publishing of newspapers, educational books, specialized publications for professionals, and retail promotional content in French and English. The company also provides strategic consulting services, such as integrated strategy, strategic planning, and social media strategy; creative development, photography, copywriting, video, and other content-related services; and search engine marketing and specialized sites services, as well as plans events, conferences, and seminars. Transcontinental Inc. was founded in 1976 and is headquartered in Montreal, Canada.


Appendix 5: Marketing Services Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar services or wider range of services

Different functional activities/markets

Insufficient information on business activities

Rejection detail

1

Agora Holdings, Inc. (OTCPK:AGHI)

8748 Business consulting ; 8740 Management and public relations services

 

X

 

Engages in the software development business

2

Aimia Inc. (TSX:AIM)

7310 Advertising

 

X

 

Operates as a data-drive marketing and loyalty analytics company

3

ALJ Regional Holdings, Inc. (NasdaqGM:ALJJ)

7374 Data processing and preparation

 

X

 

Provides call center, back-office, staffing, and toll collection services

4

Alliance Creative Group, Inc. (OTCPK:ACGX)

7310 Advertising

 

X

 

Provides retail packaging solutions

5

American Cannabis Company, Inc. (OTCPK:AMMJ)

8742 Management consulting services ; 8740 Management and public relations services

 

X

 

Provides solutions for businesses operating in the regulated cannabis industry

6

AMREP Corporation (NYSE:AXR)

7389 Business services

X

 

 

Provides real estate and fulfillment services

7

ARC Document Solutions, Inc. (NYSE:ARC)

7389 Business services

 

X

 

Reprographics company

8

ATW Tech Inc. (TSXV:ATW)

7389 Business services

 

X

 

Provides information technology solutions

9

Automatic Data Processing, Inc. (NasdaqGS:ADP)

7374 Data processing and preparation

X

 

 

Provides business process outsourcing services

10

B. Riley Financial, Inc. (NasdaqGM:RILY)

7389 Business services

X

 

 

Provides collaborative financial services

11

Black Knight, Inc. (NYSE:BKI)

7374 Data processing and preparation

 

X

 

Provides integrated technology, workflow automation, and data and analytics

12

Booking Holdings Inc. (NasdaqGS:BKNG)

-

 

X

 

Provides online travel and restaurant reservation

13

Boston Omaha Corporation (NasdaqCM:BOMN)

7310 Advertising

X

 

 

Engages in the outdoor billboard advertising business

14

Butler National Corporation (OTCPK:BUKS)

8741 Management services ; 8740 Management and public relations services

 

X

 

Provides aerospace products and professional services

15

Calian Group Ltd. (TSX:CGY)

7374 Data processing and preparation

 

X

 

Engages in systems engineering, and business and technology services activities

16

Cardtronics plc (NasdaqGS:CATM)

7389 Business services

X

 

 

Provides automated consumer financial services

17

Cass Information Systems, Inc. (NasdaqGS:CASS)

7389 Business services

 

X

 

Provides payment and information processing services

18

Cinedigm Corp. (NasdaqGM:CIDM)

7389 Business services

 

X

 

Operates as distributor and aggregator of independent movie, television, and other short form content

19

Collectors Universe, Inc. (NasdaqGM:CLCT)

7389 Business services

 

X

 

Provides cloud-based information and performance marketing solutions

20

Conduent Incorporated (NYSE:CNDT)

7374 Data processing and preparation

 

X

 

Offers payment integrity, support, member engagement, health risk assessment, claims processing, mailroom, and outbound printing services

21

CoreLogic, Inc. (NYSE:CLGX)

7374 Data processing and preparation

 

X

 

Provides property information, analytics, and data-enabled services

22

CSG Systems International, Inc. (NasdaqGS:CSGS)

7374 Data processing and preparation

 

X

 

Provides business support solutions

23

Cynergistek, Inc. (AMEX:CTEK)

7374 Data processing and preparation

 

X

 

Provides outsourced document solutions, IT consulting data security, and managed print services

24

Datametrex AI Limited (TSXV:DM)

7374 Data processing and preparation

X

 

 

Provides big data and artificial intelligence services

25

Dealnet Capital Corp. (TSXV:DLS)

7374 Data processing and preparation

 

X

 

Operates in consumer finance and engagement businesses

26

Digital Brand Media & Marketing Group, Inc. (OTCPK:DBMM)

7310 Advertising

 

 

X

Crafts, designs, and executes digital marketing strategies across various ad platforms and social media networks primarily in Great Britain

27

Emerald Expositions Events, Inc. (NYSE:EEX)

7389 Business services

 

X

 

Operates business-to-business (B2B) trade shows

28

Eurocontrol Technics Group Inc. (TSXV:EUO)

7389 Business services

 

X

 

Engages in the acquisition, development, and commercialization of energy security, authentication, verification, and certification technologies

29

EVERTEC, Inc. (NYSE:EVTC)

7374 Data processing and preparation

 

X

 

Engages in transaction processing business

30

EVO Payments, Inc. (NasdaqGM:EVOP)

7374 Data processing and preparation

 

X

 

Operates as an integrated merchant acquirer and payment processor

31

ExlService Holdings, Inc. (NasdaqGS:EXLS)

7374 Data processing and preparation

 

X

 

Provides operations management solutions and analytics

32

Expedia Group, Inc. (NasdaqGS:EXPE)

-

 

X

 

Operates as an online travel company

33

Exponent, Inc. (NasdaqGS:EXPO)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Operates as a science and engineering consulting company

34

Fidelity National Information Services, Inc. (NYSE:FIS)

7374 Data processing and preparation

 

X

 

A financial services technology company

35

First Data Corporation (NYSE:FDC)

7374 Data processing and preparation

 

X

 

Provides electronic commerce solutions

36

Fiserv, Inc. (NasdaqGS:FISV)

7374 Data processing and preparation

 

X

 

A financial services technology company

37

FleetCor Technologies, Inc. (NYSE:FLT)

7374 Data processing and preparation

 

X

 

Provides fuel cards, commercial payment and data solutions, stored value solutions, and workforce payment products and services

38

FNB, Inc. (OTCPK:FIDS)

7389 Business services

 

X

 

Operates as the bank holding company

39

Genie Gateway (OTCPK:GGWY)

7374 Data processing and preparation

 

X

 

Provides unified communications and payment processing services

40

Global Payments Inc. (NYSE:GPN)

7374 Data processing and preparation

 

X

 

Provides payment solutions

41

Green Dot Corporation (NYSE:GDOT)

7389 Business services

 

X

 

Operates as a pro-consumer technology bank holding company

42

Healthcare Integrated Technologies Inc. (OTCPK:HITC)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides staffing services to the cannabis industry

43

HealthLynked Corp. (OTCPK:HLYK)

7374 Data processing and preparation

 

X

 

Provides online platform for healthcare providers and patients

44

Hill International, Inc. (NYSE:HIL)

8741 Management services ; 8740 Management and public relations services

 

X

 

Provides program management, project management, construction management, construction claims, and other consulting services

45

Huron Consulting Group Inc. (NasdaqGS:HURN)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides advisory, consulting, technology, and analytic solutions

46

i3 Verticals, Inc. (NasdaqGS:IIIV)

7374 Data processing and preparation

 

X

 

Provides integrated payment and software solutions

47

IBI Group Inc. (TSX:IBG)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Its professional services include planning, design, implementation, analysis of operations, and other consulting services related to intelligence, buildings, and infrastructure areas

48

ICF International, Inc. (NasdaqGS:ICFI)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides management, technology, and policy consulting and implementation services

49

Information Services Group, Inc. (NasdaqGM:III)

7374 Data processing and preparation

X

 

 

Provides technology insights, market intelligence, and advisory services

50

InnerWorkings, Inc. (NasdaqGS:INWK)

7389 Business services

 

X

 

Offers outsourced print management solutions

51

Innodata Inc. (NasdaqGM:INOD)

7374 Data processing and preparation

 

X

 

A digital services and solutions company

52

Innovotech Inc. (TSXV:IOT)

7310 Advertising

 

X

 

Provides services and solutions to medical, agricultural, and industrial problems caused by microbial biofilms

53

Insignia Systems, Inc. (NasdaqCM:ISIG)

7310 Advertising

 

X

 

Develops and markets in-store products, programs, and services

54

Internap Corporation (NasdaqGS:INAP)

7374 Data processing and preparation

 

X

 

Provides data center infrastructure, cloud solutions, and network services

55

ITEX Corporation (OTCPK:ITEX)

7389 Business services

 

X

 

Operates an online marketplace

56

KAR Auction Services, Inc. (NYSE:KAR)

7389 Business services

 

X

 

Provides vehicle auction services

57

LiveRamp Holdings, Inc. (NYSE:RAMP)

7374 Data processing and preparation

 

X

 

Provides identity and data connectivity for powering exceptional customer experiences

58

Magellan Health, Inc. (NasdaqGS:MGLN)

8741 Management services ; 8740 Management and public relations services

 

X

 

Engages in the healthcare management business

59

Marchex, Inc. (NasdaqGS:MCHX)

7389 Business services

 

X

 

Operates as an advertising analytics company

60

MAXIMUS, Inc. (NYSE:MMS)

8741 Management services ; 8740 Management and public relations services

 

X

 

Operates as an advertising analytics company

61

MDC Partners Inc. (NasdaqGS:MDCA)

7311 Advertising agencies ; 7310 Advertising

 

X

 

Broader scope of activities

62

MGT Capital Investments, Inc. (OTCPK:MGTI)

7374 Data processing and preparation

 

X

 

Engages in bitcoin mining operations

63

Midwest Holding Inc. (OTCPK:MDWT)

8741 Management services ; 8740 Management and public relations services

 

X

 

A financial services holding company

64

Mission Ready Solutions Inc. (TSXV:MRS)

8740 Management and public relations services

 

X

 

Provides decontamination, cleaning, and repair services

65

MJardin Group, Inc. (CNSX:MJAR)

8741 Management services ; 8740 Management and public relations services

 

X

 

Operates as a specialized cannabis management company

66

Mobiquity Technologies, Inc. (OTCPK:MOBQ)

7310 Advertising

 

X

 

Provides location-based mobile advertising solutions

67

MoneyOnMobile, Inc. (OTCPK:MOMT)

7374 Data processing and preparation

 

X

 

Provides mobile wallet services

68

Morneau Shepell Inc. (TSX:MSI)

8742 Management consulting services ; 8740 Management and public relations services

 

X

 

Operates as a human resources consulting and technology company

69

National CineMedia, Inc. (NasdaqGS:NCMI)

7310 Advertising

 

X

 

Sells in-theatre and online advertising, and promotions

70

NatureBank Asset Management Inc. (TSXV:COO)

8748 Business consulting ; 8740 Management and public relations services

 

X

 

Engages in sourcing, financing, developing, and commercializing commodity projects

71

Navigant Consulting, Inc. (NYSE:NCI)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides professional services to corporate executives and senior management, corporate counsel, and special committees

72

Net Element, Inc. (NasdaqCM:NETE)

7374 Data processing and preparation

 

X

 

A global payments-as-a-service company

73

Novume Solutions, Inc. (NasdaqCM:NVMM)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides consulting and technical support services t

74

Omnicom Group Inc. (NYSE:OMC)

7311 Advertising agencies ; 7310 Advertising

 

X

 

Broader scope of activities

75

PayPal Holdings, Inc. (NasdaqGS:PYPL)

7374 Data processing and preparation

 

X

 

Operates as a technology platform company that enables digital and mobile payments

76

People Corporation (TSXV:PEO)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides group benefits, group retirement, and human resource services

77

PFSweb, Inc. (NasdaqCM:PFSW)

7374 Data processing and preparation

 

X

 

Provides omni-channel commerce solutions

78

Pharma-Bio Serv, Inc. (OTCPK:PBSV)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

A compliance and technology transfer services consulting company

79

Plastic2Oil, Inc. (OTCPK:PTOI)

7374 Data processing and preparation

 

X

 

Engages in the transforming unsorted and unwashed waste plastic into sulphur fuel

80

Priority Technology Holdings, Inc. (NasdaqCM:PRTH)

7374 Data processing and preparation

 

X

 

Provides merchant acquiring and commercial payment solutions

81

R1 RCM Inc. (NasdaqGS:RCM)

8741 Management services ; 8740 Management and public relations services

 

X

 

Provides revenue cycle management (RCM) for healthcare providers

82

RediShred Capital Corp. (TSXV:KUT)

7389 Business services

 

X

 

Provides onsite shredding services

83

Rego Payment Architectures, Inc. (OTCPK:RPMT)

7374 Data processing and preparation

 

X

 

Operates as a technology company that delivers an online and mobile payment platform solution

84

Research Solutions, Inc. (OTCPK:RSSS)

7389 Business services

 

X

 

Provides on-demand access to scientific, technical, and medical (STM) information

85

Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)

7389 Business services

 

X

 

Sells industrial equipment and other assets

86

root9B Holdings, Inc. (OTCPK:RTNB)

8742 Management consulting services ; 8740 Management and public relations services

 

X

 

Provides cyber security, regulatory risk mitigation, and energy and controls solutions

87

Select Interior Concepts, Inc. (NasdaqCM:SIC)

7389 Business services

 

X

 

Installs and distributes interior building products

88

Social Reality, Inc. (NasdaqCM:SRAX)

7311 Advertising agencies ; 7310 Advertising

 

X

 

An Internet advertising and platform technology company

89

Sotheby's (NYSE:BID)

7389 Business services

 

X

 

Auctioneer

90

SPAR Group, Inc. (NasdaqCM:SGRP)

7389 Business services

 

X

 

Provides merchandising and marketing services

91

SpendSmart Networks, Inc. (OTCPK:SSPC)

7311 Advertising agencies ; 7310 Advertising

 

X

 

Provides proprietary loyalty systems

92

Spindle, Inc. (OTCPK:SPDL)

7374 Data processing and preparation

 

X

 

Provides merchant and consumer-facing commerce solutions

93

Square, Inc. (NYSE:SQ)

7374 Data processing and preparation

 

X

 

Develops and provides payment processing, point-of-sale (POS), financial, and marketing services

94

Starco Brands, Inc. (OTCPK:STCB)

7310 Advertising

 

X

 

Develops and markets a range of consumer packaged products

95

StarTek, Inc. (NYSE:SRT)

7389 Business services

 

X

 

Offers technical and product support, sales support, provisioning and order processing, receivables management, healthcare services

96

Steel Connect, Inc. (NasdaqGS:STCN)

7374 Data processing and preparation

X

 

 

Provides supply chain and logistics services

97

STWC Holdings, Inc. (OTCPK:STWC)

7389 Business services

X

 

 

Provides fulfillment services

98

Surge Holdings, Inc. (OTCPK:SURG)

7310 Advertising

 

X

 

Provides discounted and subsidized wireless (cell phone) service

99

Sykes Enterprises, Incorporated (NasdaqGS:SYKE)

7374 Data processing and preparation

 

X

 

Provides outsourced customer contact management solutions

100

Telaria, Inc. (NYSE:TLRA)

7311 Advertising agencies ; 7310 Advertising

 

X

 

Provides a software platform

101

The Hackett Group, Inc. (NasdaqGS:HCKT)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Operates as a strategic advisory and technology consulting firm

102

The Interpublic Group of Companies, Inc. (NYSE:IPG)

7311 Advertising agencies ; 7310 Advertising

 

X

 

Broader scope of activities

103

The Movie Studio, Inc. (OTCPK:MVES)

7310 Advertising

 

X

 

Operates as a vertically integrated motion picture production and distribution company

104

The RMR Group Inc. (NasdaqCM:RMR)

8741 Management services ; 8740 Management and public relations services

 

X

 

Provides business and property management services

105

Total System Services, Inc. (NYSE:TSS)

7389 Business services

 

X

 

Provides payment processing services

106

TriNet Group, Inc. (NYSE:TNET)

7374 Data processing and preparation

 

X

 

Provides human resources solutions

107

TSS, Inc. (OTCPK:TSSI)

8741 Management services ; 8740 Management and public relations services

 

X

 

Provides services for the planning, design, development, and maintenance of mission-critical facilities and information infrastructure

108

TTEC Holdings, Inc. (NasdaqGS:TTEC)

7389 Business services

 

X

 

Designs and provides customer experience solutions

109

United Communications Partners Inc. (OTCPK:UCPA)

7311 Advertising agencies ; 7310 Advertising

 

 

X

Offers a network of advertising, media, and other communication services in Europe

110

Vectrus, Inc. (NYSE:VEC)

8740 Management and public relations services

 

X

 

Provides facility and logistics, and information technology and network communication services

111

Vegalab, Inc. (OTCPK:VEGL)

7389 Business services

 

X

 

Engages in the citrus packing business

112

VersaPay Corporation (TSXV:VPY)

7374 Data processing and preparation

 

X

 

A financial technology company

113

Wall Street Media Co., Inc. (OTCPK:WSCO)

8742 Management consulting services ; 8740 Management and public relations services

X

 

 

Provides consulting and management services

114

Western Pacific Trust Company (TSXV:WP)

7389 Business services

 

X

 

A non-deposit-taking independent trust company

115

WEX Inc. (NYSE:WEX)

7374 Data processing and preparation

 

X

 

Provides corporate card payment solutions

116

Wizard Entertainment, Inc. (OTCPK:WIZD)

7389 Business services

 

X

 

Produces pop culture and live multimedia conventions

117

Worldpay, Inc. (NYSE:WP)

7374 Data processing and preparation

 

X

 

Provides electronic payment processing services


Appendix 6: Marketing Services Selected Comparables' Business Descriptions and Financials

Advantex Marketing International Inc.

FY June 30

2018

2017

2016

Average

Net Sales

5.8

7.0

8.7

7.2

Cost Of Goods Sold

1.8

2.4

2.8

2.4

Gross Profit

4.0

4.6

5.8

4.8

Operating Expenses

3.2

4.4

5.1

4.2

Operating Income

0.8

0.2

0.7

0.6

Profit Level Indicator: ROTC

15.6%

3.6%

9.2%

8.9%

In USD Millions

 

 

 

 

CIQ Business Description:

Advantex Marketing International Inc. operates in the marketing services industry. The company develops and manages merchant-based loyalty programs for financial institutions and other organizations through which their customers earn flyer miles or points on purchases at participating merchants. Its programs and services include the Advance Purchase Marketing program that purchases several months of future transaction credits on behalf of its customers from selected merchants at a discount, and markets the merchants together with special cardholder incentives through the CIBC Bonus Rewards program; the Canadian Imperial Bank of Commerce (CIBC) Bonus Rewards program, which is an integrated feature of CIBC credit cards that offers cardholders with bonus rewards and other card-specific bonuses on their purchases at various establishments in Canada; and the Aeroplan Fashion program to earn Aeroplan Miles when customers shop for clothing, footwear, jewelry, and fashion accessories. As of October 26, 2016, the company had partnerships with approximately 1,300 merchants in Canada and the United States. Its merchant partners operate in various business segments, including restaurants; golf courses; independent inns, resorts, and selected hotels; spas; retailers of men's and ladies fashion, footwear, and accessories; retailers of sporting goods; florists and garden centers; book and newspaper stores; health and beauty centers; dry cleaners; gift stores; home decor; automotive dealers and service centers; and tire dealerships. Advantex Marketing International Inc. was founded in 1994 and is headquartered in Markham, Canada.


Affinion Group Holdings, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

699.8

724.1

742.0

722.0

Cost Of Goods Sold

474.1

525.8

519.2

506.4

Gross Profit

225.7

198.3

222.8

215.6

Operating Expenses

160.8

130.7

164.4

152.0

Operating Income

64.9

67.6

58.4

63.6

Profit Level Indicator: ROTC

10.2%

10.3%

8.5%

9.7%

In USD Millions

CIQ Business Description:

Affinion Group Holdings, Inc. engages in designing, marketing, and servicing customer engagement and loyalty solutions worldwide. The company partners with various companies to develop and market programs that offer a range of services to their end-customers. Its customer engagement and loyalty solutions include the development of customized and relevant products and services that address fundamental consumer needs and fulfill the expectations consumers have of the services and offers they expect to receive from its marketing partners; marketing strategy and management of customized marketing programs; and data analysis utilizing its proprietary technology and databases to target customers. The company's customer engagement and loyalty solutions also comprise the design and implementation of marketing campaigns in various types of media, including direct mail, online marketing, point-of-sale marketing, direct response television marketing, Internet, inbound and outbound telephony, and voice response unit marketing; fulfillment, customer service, Website, and mobile application development; loyalty program design and administration; and disaggregated loyalty redemption options, such as gift cards, cash back, travel, and merchandise. It also provides discount travel services, credit monitoring and identity-theft resolution, accidental death and dismemberment insurance, roadside assistance, various checking accounts, and credit card enhancement services, as well as other products and services. The company provides its products and services through retail and wholesale arrangements. Affinion Group Holdings, Inc. was founded in 1973 and is headquartered in Stamford, Connecticut.

Alliance Data Systems Corporation

FY December 31

2018

2017

2016

Average

Net Sales

7,791.2

7,719.4

7,138.1

7,549.6

Cost Of Goods Sold

5,723.9

5,798.0

5,518.8

5,680.2

Gross Profit

2,067.3

1,921.4

1,619.3

1,869.3

Operating Expenses

558.9

565.5

564.1

562.8

Operating Income

1,508.4

1,355.9

1,055.2

1,306.5

Profit Level Indicator: ROTC

24.0%

21.3%

17.3%

20.9%

In USD Millions

 

 

 

 

CIQ Business Description:

Alliance Data Systems Corporation provides marketing and loyalty solutions in the United States and internationally. It facilitates and manages interactions between its clients and their customers through consumer marketing channels, including in-store, online, email, social media, mobile, direct mail, and telephone. The company operates in three segments: LoyaltyOne, Epsilon, and Card Services. The LoyaltyOne segment owns and operates the AIR MILES Reward Program and BrandLoyalty program that are coalition and short-term loyalty programs. This segment also offers loyalty consulting, customer analytics, creative services, and mobile solutions. The Epsilon segment provides direct marketing solutions that leverage transactional data to help clients acquire and build relationships with their customers. Its services include strategic consulting, customer database technologies, omnichannel marketing, loyalty management, proprietary data, predictive modeling, permission-based email marketing, personalized digital marketing, and direct and digital agency services. This segment's marketing services comprise agency, marketing technology, data, strategy and analytical, and traditional and digital marketing. The Card Services segment offers credit card processing, billing and payment processing, customer care, and collections services for private label retailers, as well as private label retail credit card and loan receivables financing, including securitization of the credit card receivables that it underwrites from its private label and co-brand retail credit card programs. This segment also designs and implements strategies that help its clients in acquiring, retaining, and managing repeat customers. It serves financial services, specialty retail, grocery and drugstore chains, petroleum retail, automotive, hospitality and travel, telecommunications, insurance, and healthcare markets. The company was founded in 1996 and is headquartered in Plano, Texas.


Fluent, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

250.3

211.7

186.8

216.3

Cost Of Goods Sold

161.6

146.4

133.8

147.2

Gross Profit

88.7

65.3

53.0

69.0

Operating Expenses

65.0

77.2

79.9

74.0

Operating Income

23.7

(11.9)

(26.9)

(5.0)

Profit Level Indicator: ROTC

10.5%

-5.3%

-12.6%

-2.3%

In USD Millions

 

 

 

CIQ Business Description:

Fluent, Inc. provides data-driven digital marketing services primarily in the United States. The company also offers customer acquisition services by operating digital marketing campaigns, through which the company connects its advertiser clients with consumers. It delivers data and performance-based marketing executions to approximately 500 consumer brands, direct marketers, and agencies across a range of industries, including financial services, retail and consumer, media and entertainment, staffing and recruitment, and marketing services. The company was formerly known as Cogint, Inc. and changed its name to Fluent, Inc. in April 2018. Fluent, Inc. is headquartered in New York, New York.

Harte Hanks, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

284.6

383.9

404.4

357.6

Cost Of Goods Sold

264.2

339.4

362.4

322.0

Gross Profit

20.4

44.5

42.0

35.6

Operating Expenses

41.7

50.9

57.2

49.9

Operating Income

(21.2)

(6.4)

(15.2)

(14.3)

Profit Level Indicator: ROTC

-6.9%

-1.6%

-3.6%

-3.8%

In USD Millions

 

 

 

 

CIQ Business Description:

Harte Hanks, Inc. provides various multichannel marketing services in the United States and internationally. The company operates in two segments, Customer Interaction and Trillium Software. The Customer Interaction segment provides agency and digital services, including search engine management, display, digital analytics, Website development and design, digital strategy, social media, email, e-commerce, and interactive relationship management services; database marketing solutions and business-to-business lead generations that offer insight and analytics, customer data integration, and marketing communications tools. This segment offers direct marketing services, including digital printing, print on demand, advanced mail optimization, logistics and transportation optimization, tracking, commingling, shrink wrapping, and specialized mailing services, as well as custom kitting, print on demand, product recalls, and freight optimization services through its fulfillment centers; and operates teleservice workstations that offer contact center solutions comprising speech, voice and video chat, integrated voice response, analytics, social cloud monitoring, and Web self-services. The Trillium Software segment offers data quality solutions comprising data profiling, data cleansing, enrichment, and data linking for e-business, Big Data customer relationship management, data governance, enterprise resource planning, supply chain management, data warehouse, and other enterprise applications. It serves retail, technology, financial services, automotive and consumer brands, and pharmaceutical/healthcare vertical markets. Harte Hanks, Inc. was founded in 1970 and is based in San Antonio, Texas.

Points International Ltd.

FY December 31

2018

2017

2016

Average

Net Sales

376.2

348.6

321.6

348.8

Cost Of Goods Sold

322.3

302.1

278.5

301.0

Gross Profit

53.9

46.6

43.1

47.9

Operating Expenses

43.7

42.0

38.1

41.3

Operating Income

10.2

4.6

5.1

6.6

Profit Level Indicator: ROTC

2.8%

1.3%

1.6%

1.9%

In USD Millions

 

 

 

CIQ Business Description:

Points International Ltd. provides e-commerce and technology services to loyalty program operators in the United States, Europe, Canada, and internationally. It provides various white label or private branded ecommerce services, including online sale of loyalty currency direct to program members in order for the members to top-up their accounts to reach a redemption threshold or as a gift for friends and family members; and the online transfer of pre-existing loyalty currency from one member into another member's account, primarily a family member or friend, as another means of enabling that other member to accumulate sufficient miles or points to reach a redemption threshold. It also operates Points Loyalty Wallet, a set of platform capabilities accessible through application program interfaces that enable loyalty programs, merchants, and other businesses to embed balance tracking and loyalty commerce transactions into their product offerings and allow users to track, manage, and access multiple loyalty rewards programs. In addition, the company operates PointsHound.com that allows loyalty program members to earn loyalty points for staying in their favorite hotels and also to earn bonus rewards in the form of airline miles; and Points Travel, an e-commerce platform that helps loyalty programs enhance their revenues from hotel sales. The company was incorporated in 1999 and is headquartered in Toronto, Canada.

Appendix 7: Sales – Wholesale/Direct Marketing Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar products

Different functional activities/markets

 

1

1-800-FLOWERS.COM, Inc. (NasdaqGS:FLWS)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Provides gourmet food and floral gifts

2

A.M. Castle & Co. (OTCPK:CTAM)

5000 Durable goods - wholesale

 

X

Operates as a specialty metals distribution company

3

AAR Corp. (NYSE:AIR)

5000 Durable goods - wholesale

 

X

Provides products and services to commercial aviation, government, and defense markets

4

Alliance Media Holdings Inc. (OTCPK:ADTR)

5000 Durable goods - wholesale

 

X

An integrated video game company, publishes and distributes video game consoles

5

A-Mark Precious Metals, Inc. (NasdaqGS:AMRK)

5000 Durable goods - wholesale

 

X

Operates as a precious metals trading company

6

Amazon.com, Inc. (NasdaqGS:AMZN)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Engages in the retail sale of consumer products and subscriptions

7

AMCON Distributing Company (AMEX:DIT)

5190 Miscellaneous nondurable goods - wholesale

 

X

Operates retail health food stores

8

AMREP Corporation (NYSE:AXR)

7389 Business services

 

X

Provides real estate and fulfillment services

9

Anixter International Inc. (NYSE:AXE)

5000 Durable goods - wholesale

 

X

Provides supply chain management outsourcing services

10

ARC Document Solutions, Inc. (NYSE:ARC)

7389 Business services

 

X

Offers managed print services, an onsite service that places, manages, and optimizes print and imaging equipment in customers' offices

11

Arrow Electronics, Inc. (NYSE:ARW)

5000 Durable goods - wholesale

X

 

Markets and distributes semiconductor products

12

ATW Tech Inc. (TSXV:ATW)

7389 Business services

 

X

Provides information technology solutions

13

Avnet, Inc. (NasdaqGS:AVT)

5000 Durable goods - wholesale

 

X

Provides supply chain management outsourcing services

14

B. Riley Financial, Inc. (NasdaqGM:RILY)

7389 Business services

 

X

Provides collaborative financial services and solutions

15

Beacon Roofing Supply, Inc. (NasdaqGS:BECN)

5000 Durable goods - wholesale

X

 

Distributes residential and commercial roofing materials

16

BlackPoll Fleet International, Inc. (OTCPK:BPOL)

5000 Durable goods - wholesale

 

X

Provides contract procurement, aviation business development, and aircraft management services

17

Blue Apron Holdings, Inc. (NYSE:APRN)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates direct-to-consumer platform that delivers original recipes, and fresh and seasonal ingredients

18

BlueLinx Holdings Inc. (NYSE:BXC)

5000 Durable goods - wholesale

X

 

Distributes building and industrial products

19

Bluestem Group Inc. (OTCPK:BGRP)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Offers a selection of name-brand, private label, and non-branded merchandise through Internet Websites and catalog

20

Boise Cascade Company (NYSE:BCC)

5000 Durable goods - wholesale

 

X

Manufactures wood products and distributes building materials

21

Bravatek Solutions, Inc. (OTCPK:BVTK)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides security, defense, and information security solutions

22

BSQUARE Corporation (NasdaqGM:BSQR)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides software solutions and related engineering services

23

Candy Club Holdings Limited (ASX:CLB)

5960 Nonstore retailers

X

 

Sells confectionery products direct to consumer

24

CanWel Building Materials Group Ltd. (TSX:CWX)

5000 Durable goods - wholesale

 

X

Distributes building materials and home renovation products

25

Cardtronics plc (NasdaqGS:CATM)

7389 Business services

 

X

Provides automated consumer financial services

26

Carvana Co. (NYSE:CVNA)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates an e-commerce platform for buying used cars

27

Cass Information Systems, Inc. (NasdaqGS:CASS)

7389 Business services

 

X

Provides payment and information processing services

28

CCOM Group, Inc. (OTCPK:CCOM)

5000 Durable goods - wholesale

 

X

Offers control system design and technical consulting

29

CDW Corporation (NasdaqGS:CDW)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

The company offers discrete hardware and software products, as well as integrated IT solutions, including mobility, security, data center optimization, cloud computing, virtualization, and collaboration

30

Cinedigm Corp. (NasdaqGM:CIDM)

7389 Business services

X

 

Operates as distributor and aggregator of independent movie, television, and other short form content

31

Collectors Universe, Inc. (NasdaqGM:CLCT)

7389 Business services

 

X

Provides authentication and grading services

32

Copart, Inc. (NasdaqGS:CPRT)

5000 Durable goods - wholesale

 

X

Provides online auctions and vehicle remarketing services

33

Core-Mark Holding Company, Inc. (NasdaqGS:CORE)

5190 Miscellaneous nondurable goods - wholesale

X

 

Markets fresh and broad-line supply solutions

34

Crednology Holding Corporation (OTCPK:COHO)

5190 Miscellaneous nondurable goods - wholesale

 

X

Offers business continuity solutions, including cloud computing and disaster recovery services

35

Duluth Holdings Inc. (NasdaqGS:DLTH)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

Sells casual wear, workwear, and accessories for men and women under the Duluth Trading brand

36

DXP Enterprises, Inc. (NasdaqGS:DXPE)

5000 Durable goods - wholesale

 

X

Offers supply chain services

37

Educational Development Corporation (NasdaqGM:EDUC)

5190 Miscellaneous nondurable goods - wholesale

 

X

Operates as a trade co-publisher of the line of educational children’s books

38

Emerald Expositions Events, Inc. (NYSE:EEX)

7389 Business services

 

X

Operates business-to-business (B2B) trade shows

39

Environmental Packaging Technologies Holdings, Inc. (OTCPK:EPTI)

5000 Durable goods - wholesale

 

X

Provides packaging solutions for the transport and storage of bulk products

40

ePlus inc. (NasdaqGS:PLUS)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides information technology (IT) products and services, flexible leasing and financing solutions

41

EVI Industries, Inc. (AMEX:EVI)

5000 Durable goods - wholesale

 

X

Distributes, leases, and rents commercial, industrial, and vended laundry and dry cleaning equipment

42

EVINE Live Inc. (NasdaqGS:EVLV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as a digital commerce company

43

Fastenal Company (NasdaqGS:FAST)

5000 Durable goods - wholesale

 

X

Operates retail stores

44

Finning International Inc. (TSX:FTT)

5000 Durable goods - wholesale

 

X

Engages in selling, servicing, and renting heavy equipment

45

FNB, Inc. (OTCPK:FIDS)

7389 Business services

 

X

Operates as the bank holding company for The First National Bank of Dennison

46

FTD Companies, Inc. (NasdaqGS:FTD)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as a floral and gifting company

47

Fuse Medical, Inc. (OTCPK:FZMD)

5000 Durable goods - wholesale

X

 

Distributes medical devices

48

GCI Liberty, Inc. (NasdaqGS:GLIB.A)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Provides various communication service

49

Genuine Parts Company (NYSE:GPC)

5000 Durable goods - wholesale

 

X

Provides repair services

50

Globe Photos, Inc. (OTCPK:GBPT)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

Sells and manages classic and contemporary limited edition photographic images and reproductions

51

GMS Inc. (NYSE:GMS)

5000 Durable goods - wholesale

 

X

Distributes wallboards, suspended ceilings systems, and related construction products

52

Goodfellow Inc. (TSX:GDL)

5000 Durable goods - wholesale

X

 

Distributes lumber products, building materials, and hardwood flooring products

53

Goodfood Market Corp. (TSX:FOOD)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

A home meal solution service company

54

Green Dot Corporation (NYSE:GDOT)

7389 Business services

 

X

Operates as a financial technology and bank holding company

55

H&E Equipment Services, Inc. (NasdaqGS:HEES)

5000 Durable goods - wholesale

 

X

Operates as an integrated equipment services company

56

Hardwoods Distribution Inc. (TSX:HDI)

5000 Durable goods - wholesale

X

 

Distributes hardwood lumber, plywood, medium density fiberboard, melamine

57

Henry Schein, Inc. (NasdaqGS:HSIC)

5000 Durable goods - wholesale

X

 

Provides health care products and services to dental practitioners and laboratories

58

Huttig Building Products, Inc. (NasdaqCM:HBP)

5000 Durable goods - wholesale

 

X

Distributes millwork, building materials, and wood products

59

ICTV Brands Inc. (OTCPK:ICTV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

A direct response marketing and international branding company

60

India Globalization Capital, Inc. (AMEX:IGC)

5000 Durable goods - wholesale

 

X

Engages in the development and commercialization of cannabis-based therapies

61

Inpixon (NasdaqCM:INPX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides big data analytics and location based products and related services for the cyber-security and Internet of things markets

62

Insight Enterprises, Inc. (NasdaqGS:NSIT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides information technology (IT) hardware, software, cloud, and service solutions

63

ITEX Corporation (OTCPK:ITEX)

7389 Business services

 

X

Operates a marketplace in which products and services are exchanged by marketplace members without exchanging cash

64

Jewett-Cameron Trading Company Ltd. (NasdaqCM:JCTC.F)

5000 Durable goods - wholesale

 

X

Manufactures and distributes specialty metal products

65

Kaman Corporation (NYSE:KAMN)

5000 Durable goods - wholesale

 

X

Produces aerospace products

66

KAR Auction Services, Inc. (NYSE:KAR)

7389 Business services

 

X

Provides used car auction and salvage auction services

67

L.B. Foster Company (NasdaqGS:FSTR)

5000 Durable goods - wholesale

 

X

Manufactures and distributes products and services for the transportation and energy infrastructure

68

Lands' End, Inc. (NasdaqCM:LE)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as a multi-channel retailer

69

Liquidity Services, Inc. (NasdaqGS:LQDT)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Provides e-commerce marketplace solutions

70

LKQ Corporation (NasdaqGS:LKQ)

5000 Durable goods - wholesale

 

X

Operates in retail of automotive products

71

Marchex, Inc. (NasdaqGS:MCHX)

7389 Business services

 

X

Operates as a call analytics company

72

Meso Numismatics, Inc. (OTCPK:MSSV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Sells coins, paper currency, bullion, and medals through live auctions

73

NOW Inc. (NYSE:DNOW)

5000 Durable goods - wholesale

 

X

Offers supply chain and materials management services

74

Olympic Steel, Inc. (NasdaqGS:ZEUS)

5000 Durable goods - wholesale

 

X

Processes and distributes metal products

75

Online Vacation Center Holdings Corp. (OTCPK:ONVC)

5190 Miscellaneous nondurable goods - wholesale

 

X

Provides vacation travel and marketing services

76

Overstock.com, Inc. (NasdaqGM:OSTK)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as an online retailer

77

Owens & Minor, Inc. (NYSE:OMI)

5000 Durable goods - wholesale

 

X

Operates as a healthcare solutions company

78

Paragon Technologies, Inc. (OTCPK:PGNT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Engages in the material handling, distribution, real estate, and investments business activities

79

Park-Ohio Holdings Corp. (NasdaqGS:PKOH)

5000 Durable goods - wholesale

 

X

Provides supply chain management outsourcing services

80

Patterson Companies, Inc. (NasdaqGS:PDCO)

5000 Durable goods - wholesale

X

 

Distributes and sells dental and animal health products

81

PC Connection, Inc. (NasdaqGS:CNXN)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Provides a range of information technology (IT) solutions

82

PCM, Inc. (NasdaqGM:PCMI)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as a multi-vendor provider of technology products and solutions

83

Pool Corporation (NasdaqGS:POOL)

5000 Durable goods - wholesale

X

 

Distributes swimming pool supplies, equipment, and related leisure products

84

Pyxus International, Inc. (NYSE:PYX)

5190 Miscellaneous nondurable goods - wholesale

X

 

Engages in the provision of various agricultural products

85

Qurate Retail, Inc. (NasdaqGS:QRTE.A)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Markets and sells various consumer products primarily through live video programs, Websites, and mobile applications

86

Real Matters Inc. (TSX:REAL)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Develops and provides technology and network management solutions

87

RedHawk Holdings Corp. (OTCPK:IDNG)

5000 Durable goods - wholesale

X

 

Engages in sale and distribution of medical devices

88

RediShred Capital Corp. (TSXV:KUT)

7389 Business services

 

X

Provides onsite shredding services under the Proshred brand

89

Regional Brands Inc. (OTCPK:RGBD)

5000 Durable goods - wholesale

X

 

Engages in the sale and distribution of windows, doors, and related hardware

90

Reliance Steel & Aluminum Co. (NYSE:RS)

5000 Durable goods - wholesale

 

X

Operates as a metals service center company

91

Research Solutions, Inc. (OTCPK:RSSS)

7389 Business services

 

X

Provides annual licenses that allow customers to access and utilize features of cloud based software-as-a-service research intelligence platform

92

Resideo Technologies, Inc. (NYSE:REZI)

5000 Durable goods - wholesale

 

X

Provides critical comfort, thermal, and security solutions

93

Richardson Electronics, Ltd. (NasdaqGS:RELL)

5000 Durable goods - wholesale

 

X

Engages in power and microwave technologies, customized display solutions, and healthcare equipment businesses

94

Richelieu Hardware Ltd. (TSX:RCH)

5000 Durable goods - wholesale

X

 

Distributes, and manufactures specialty hardware and complementary products

95

Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)

7389 Business services

 

X

An asset management and disposition company

96

Russel Metals Inc. (TSX:RUS)

5000 Durable goods - wholesale

X

 

Distributes steel and metal products

97

Ryerson Holding Corporation (NYSE:RYI)

5000 Durable goods - wholesale

X

 

Processes and distributes industrial metals

98

Schnitzer Steel Industries, Inc. (NasdaqGS:SCHN)

5000 Durable goods - wholesale

 

X

Recycles ferrous and nonferrous scrap metals; and manufactures finished steel products

99

School Specialty, Inc. (OTCPK:SCOO)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Distributes supplies, furniture, technology products, supplemental learning products, and curriculum solutions to the education marketplace and schools

100

Select Interior Concepts, Inc. (NasdaqCM:SIC)

7389 Business services

 

X

Installs and distributes interior building products

101

Sims Metal Management Limited (ASX:SGM)

5000 Durable goods - wholesale

 

X

Engages in buying, processing, and selling ferrous and non-ferrous recycled metals

102

Sotheby's (NYSE:BID)

7389 Business services

 

X

Operates as an auctioneer of authenticated fine art, decorative art, jewelry, wine, and collectibles

103

Standard Diversified Inc. (AMEX:SDI)

5190 Miscellaneous nondurable goods - wholesale

 

X

Engages in the insurance, other tobacco products, and outdoor advertising activities

104

StarTek, Inc. (NYSE:SRT)

7389 Business services

 

X

Offers technical and product support, sales support, provisioning and order processing, receivables management, healthcare services, up-sell and cross-sell program, and customer intelligence analytics

105

Stitch Fix, Inc. (NasdaqGS:SFIX)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

Sells a range of apparel, shoes, and accessories

106

Strongco Corporation (TSX:SQP)

5000 Durable goods - wholesale

X

 

Sells, rents, and services new and used equipment

107

STWC Holdings, Inc. (OTCPK:STWC)

7389 Business services

 

X

Provides fulfillment services to medical and retail stores, and cultivation facilities in the regulated cannabis industry

108

Sugarmade, Inc. (OTCPK:SGMD)

5110 Paper and paper products - wholesale

 

X

Company produces and wholesales custom printed and generic supplies

109

SYNNEX Corporation (NYSE:SNX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides business process services to resellers, retailers

110

Sysorex, Inc. (OTCPK:SYSX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Provides data analytics and location based solutions and services

111

Systemax Inc. (NYSE:SYX)

5000 Durable goods - wholesale

X

 

Operates as a direct marketer of brand name and private label products

112

Taitron Components Incorporated (NasdaqCM:TAIT)

5000 Durable goods - wholesale

X

 

Engages in the supply of original designed and manufactured (ODM) electronic components, and distribution of brand name electronic components

113

TESSCO Technologies Incorporated (NasdaqGS:TESS)

5000 Durable goods - wholesale

 

X

Architects and delivers products and value chain solutions

114

Toromont Industries Ltd. (TSX:TIH)

5000 Durable goods - wholesale

 

X

Involved in the sale, rental, and service of mobile equipment

115

Total System Services, Inc. (NYSE:TSS)

7389 Business services

 

X

Provides payment processing, merchant, and related payment services

116

Transcat, Inc. (NasdaqGM:TRNS)

5000 Durable goods - wholesale

 

X

Provides calibration and laboratory instrument services

117

TTEC Holdings, Inc. (NasdaqGS:TTEC)

7389 Business services

 

X

Designs and provides customer experience solutions

118

TX Holdings, Inc. (OTCPK:TXHG)

5000 Durable goods - wholesale

X

 

Supplies, distributes, and sells drill bits, related tools, and other mining supplies and rail products

119

U.S. Auto Parts Network, Inc. (NasdaqGS:PRTS)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as an online provider of aftermarket auto parts and accessories

120

Universal Mfg. Co. (OTCPK:UFMG)

5000 Durable goods - wholesale

X

 

Remanufactures and distributes electric fuel pumps, transfer cases, calipers, transmission assembles

121

usell.com, Inc. (OTCPK:USEL)

5000 Durable goods - wholesale

 

X

Operates as a market maker of used smartphones

122

Vaso Corporation (OTCPK:VASO)

5000 Durable goods - wholesale

 

X

Focuses on healthcare IT and managed network technology services

123

Vegalab, Inc. (OTCPK:VEGL)

7389 Business services

 

X

Engages in the citrus packing business

124

Velocity Data Inc. (CNSX:VCT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Engages in the sale of computer systems and related components primarily to government contractors and federal government end-users

125

Vet Online Supply, Inc. (OTCPK:VTNL)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

Engages in the online sale of pet products

126

W.W. Grainger, Inc. (NYSE:GWW)

5000 Durable goods - wholesale

X

 

Distributes maintenance, repair, and operating (MRO) products and services

127

Wajax Corporation (TSX:WJX)

5000 Durable goods - wholesale

 

X

Provides sales, parts, and services to transportation, forestry, industrial and commercial, construction, oil sands companies

128

Watsco, Inc. (NYSE:WSO)

5000 Durable goods - wholesale

X

 

Distributes air conditioning, heating, and refrigeration equipment

129

Wayfair Inc. (NYSE:W)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Engages in the e-commerce business

130

Wayside Technology Group, Inc. (NasdaqGM:WSTG)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

Operates as an information technology channel company

131

Wesco Aircraft Holdings, Inc. (NYSE:WAIR)

5000 Durable goods - wholesale

X

 

Distributes aerospace products and provides supply chain management services

132

WESCO International, Inc. (NYSE:WCC)

5000 Durable goods - wholesale

 

X

Provides supply chain management and logistics solutions

133

Western Pacific Trust Company (TSXV:WP)

7389 Business services

 

X

A non-deposit-taking independent trust company

134

Williams-Sonoma, Inc. (NYSE:WSM)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

Operates as a multi-channel specialty retailer of various products for home

135

Wizard Entertainment, Inc. (OTCPK:WIZD)

7389 Business services

 

X

Produces pop culture live multimedia conventions


Appendix 8: Sales – Wholesale/Direct Marketing Selected Comparables' Business Description and Financials

ADDvantage Technologies Group, Inc.

FY September 30

2018

2017

2016

Average

Net Sales

47.4

48.7

38.7

44.9

Cost Of Goods Sold

36.2

33.9

26.2

32.1

Gross Profit

11.2

14.8

12.4

12.8

Operating Expenses

14.3

14.7

12.1

13.7

Operating Income

(3.1)

0.1

0.3

(0.9)

Profit Level Indicator: OM

-6.5%

0.3%

0.9%

-1.9%

In USD Millions

 

 

 

 

CIQ Business Description:

ADDvantage Technologies Group, Inc., through its subsidiaries, distributes and services electronics and hardware for the cable television and telecommunication industries in the United States, Canada, Central America, Asia, Europe, Mexico, South America, and internationally. The company operates through two segments, Cable Television and Telecommunications. The Cable Television segment provides products for video, telephone, and Internet data signals. It offers headend products, such as satellite receivers, integrated receivers/decoders, demodulators, modulators, antennas and antenna mounts, amplifiers, equalizers, and processors; fiber products that include optical transmitters, fiber optic cables, receivers, splitters, and compatible accessories; and access and transport products, such as line extenders, broadband amplifiers, and directional taps. In addition, this segment offers test equipment; hardware equipment that include connectors and cable products; and repair services. The Telecommunications segment provides telecommunication equipment, such as spares and replace non-working components; and customer premise equipment to the reseller community, telecommunications companies, and enterprise companies. This segment offers central office equipment that include optical transport, switching, and data center equipment for communication networks; customer premise equipment, such as integrated access devices, channel banks, Internet protocol private branch exchange phones, and routers; and decommissioning services for surplus and obsolete telecom equipment. The company was formerly known as ADDvantage Media Group, Inc. and changed its name to ADDvantage Technologies Group, Inc. in December 1999. ADDvantage Technologies Group, Inc. was founded in 1989 and is headquartered in Broken Arrow, Oklahoma.


Applied Industrial Technologies, Inc.

FY June 30

2018

2017

2016

Average

Net Sales

3,073.3

2,593.7

2,519.4

2,728.8

Cost Of Goods Sold

2,189.3

1,856.1

1,808.4

1,951.2

Gross Profit

884.0

737.7

711.0

777.6

Operating Expenses

649.5

563.1

548.6

587.1

Operating Income

234.5

174.6

162.4

190.5

Profit Level Indicator: OM

7.6%

6.7%

6.4%

7.0%

In USD Millions

CIQ Business Description:

Applied Industrial Technologies, Inc. distributes industrial products in North America, Australia, New Zealand, and Singapore. The company offers its products for maintenance, repair, and operational, as well as original equipment manufacturing customers. It operates in two segments, Service Center Based Distribution, and Fluid Power and Flow Control. The company distributes bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, industrial rubber products, linear motion components, tools, safety products, oilfield supplies, and other industrial and maintenance supplies; and hydraulic, pneumatic, lubrication, filtration, and flow control components and systems. It also operates fabricated rubber shops that modify and repair conveyor belts, as well as provide hose assemblies; and rubber service field crews to install and repair conveyor belts and rubber lining at customer locations. In addition, the company rebuilds or assembles speed reducers, pumps, valves, cylinders, and electric and hydraulic motors, as well as custom machining products; and offers flow control and technical support services. It offers industrial products through a network of service centers. The company serves various industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated metals, forest products, industrial machinery and equipment, mining, oil and gas, primary metals, transportation, and utilities, as well as to government entities. Applied Industrial Technologies, Inc. was founded in 1923 and is headquartered in Cleveland, Ohio.


EACO Corporation

FY August 31

2018

2017

2016

Average

Net Sales

193.3

157.0

148.5

166.3

Cost Of Goods Sold

138.3

112.2

105.0

118.5

Gross Profit

55.0

44.8

43.6

47.8

Operating Expenses

44.7

38.5

37.1

40.1

Operating Income

10.3

6.3

6.4

7.7

Profit Level Indicator: OM

5.3%

4.0%

4.3%

4.6%

In USD Millions

 

 

 

 

CIQ Business Description:

EACO Corporation, through its wholly-owned subsidiary, Bisco Industries, Inc., distributes and sells electronic components and fasteners primarily in the United States and Canada. It offers electronic components, including spacers and standoffs, card guides and ejectors, component holders and fuses, circuit board connectors, and cable components, as well as various fasteners and hardware products. The company supplies parts used in the manufacture of products in a range of industries, including aerospace, circuit board, communication, computer, fabrication, instrumentation, industrial equipment, and marine. It also provides customized services and solutions for various production needs comprising special packaging, bin stocking, kitting and assembly, bar coding, electronic requisitioning, integrated supply programs, and others. The company sells its products primarily to the original equipment manufacturers through its sales representatives and distribution centers; and through its Website. EACO Corporation was founded in 1973 and is headquartered in Anaheim, California.


HD Supply Holdings, Inc.

FY January 31

2018

2017

2016

Average

Net Sales

6,047.0

5,121.0

4,819.0

5,329.0

Cost Of Goods Sold

3,672.0

3,088.0

2,894.0

3,218.0

Gross Profit

2,375.0

2,033.0

1,925.0

2,111.0

Operating Expenses

1,642.0

1,419.0

1,353.0

1,471.3

Operating Income

733.0

614.0

572.0

639.7

Profit Level Indicator: OM

12.1%

12.0%

11.9%

12.0%

In USD Millions

 

 

 

CIQ Business Description:

HD Supply Holdings, Inc. operates as an industrial distributor in North America. It operates through two segments, Facilities Maintenance, and Construction & Industrial. The Facilities Maintenance segment offers electrical and lighting items, plumbing supplies, appliances, janitorial supplies, hardware products, kitchen and bath cabinets, window coverings, textiles and guest amenities, healthcare maintenance products, and water and wastewater treatment products, as well as heating, ventilating, and air conditioning products. The Construction & Industrial segment provides tilt-up brace systems, forming and shoring systems, concrete chemicals, hand and power tools, cutting tools, rebars, ladders, safety and fall arrest equipment, specialty screws and fasteners, sealants and adhesives, drainage pipes, geo-synthetics, erosion and sediment control equipment, and other engineered materials used in non-residential and residential construction. This segment also offers home improvement solutions, such as light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment, and other products primarily to small remodeling contractors and trade professionals through local retail outlets. In addition, it provides pre-bid assistance, product submittals, engineering, and tool repair services. The company serves contractors, maintenance professionals, home builders, industrial businesses, and government entities through a network of branches and professional sales force, as well as through print catalogs and e-commerce. The company was formerly known as HDS Investment Holding, Inc. and changed its name to HD Supply Holdings, Inc. in April 2013. HD Supply Holdings, Inc. was founded in 2007 and is headquartered in Atlanta, Georgia.

Houston Wire & Cable Company

FY December 31

2018

2017

2016

Average

Net Sales

356.9

317.7

261.6

312.1

Cost Of Goods Sold

271.7

245.0

208.7

241.8

Gross Profit

85.2

72.7

53.0

70.3

Operating Expenses

71.3

68.1

57.1

65.5

Operating Income

14.0

4.6

(4.2)

4.8

Profit Level Indicator: OM

3.9%

1.4%

-1.6%

1.5%

In USD Millions

 

 

 

 

CIQ Business Description:

Houston Wire & Cable Company, through its subsidiaries, sells electrical and mechanical wire and cable, industrial fasteners, hardware, and related services in the United States. It offers wire and cable products, including continuous and interlocked armor cables; control and power cables; electronic wires and cables; flexible and portable cords; instrumentation and thermocouple cables; lead and high temperature cables; medium voltage cables; and premise and category wires and cables, primary and secondary aluminum distribution cables, and steel wire ropes and wire rope slings, as well as synthetic fiber rope slings, chains, shackles, and other related hardware and corrosion resistant products. The company also provides private branded products comprising its proprietary brand LifeGuard, a low-smoke zero-halogen cable. Its products are used in maintenance, repair, and operations activities, and related projects; larger-scale projects in the utility, industrial, and infrastructure markets; and a range of industrial applications, such as communications, energy, engineering and construction, general manufacturing, marine construction and marine transportation, mining, infrastructure, oilfield services, petrochemical, transportation, utility, wastewater treatment, and food and beverage. Houston Wire & Cable Company was founded in 1975 and is based in Houston, Texas.


InnerWorkings, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

1,121.6

1,138.4

1,094.4

1,118.1

Cost Of Goods Sold

866.5

862.9

831.8

853.7

Gross Profit

255.1

275.5

262.6

264.4

Operating Expenses

252.1

240.6

227.4

240.1

Operating Income

3.0

34.8

35.1

24.3

Profit Level Indicator: OM

0.3%

3.1%

3.2%

2.2%

In USD Millions

 

 

 

 

CIQ Business Description:

InnerWorkings, Inc. provides marketing execution solutions in North America, Latin America, Europe, the Middle East, and Africa. The company's proprietary software applications and databases create an integrated solution that stores, analyzes, and tracks the production capabilities of the supplier network, as well as detailed pricing data. It offers outsourced print management solutions that encompass the design, sourcing, and delivery of printed marketing materials, including direct mail, in-store signage, and marketing collateral; and outsourced solutions for the design, sourcing, and delivery of branded merchandise and product packaging. The company also assists clients with the management of events, promotions spending, and related procurement needs; and designs, sources, and installs point of sale displays, permanent retail fixtures, and overall store design, as well as offers on-site outsourced creative studio services and on-demand creative services. In addition, it provides fulfillment and logistics services, such as kitting and assembly, inventory management, and pre-sorting postage. Further, the company offers creative services comprising copywriting, graphics and Website design, identity work and marketing collateral development, and image and print-ready page processing and proofing capability services. It serves corporate clients in a range of industries, such as retail, financial services, hospitality, consumer packaged goods, non-profits, healthcare, food and beverage, broadcasting and cable, and transportation. The company was founded in 2001 and is headquartered in Chicago, Illinois.


Lawson Products, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

349.6

305.9

276.6

310.7

Cost Of Goods Sold

160.1

122.9

108.5

130.5

Gross Profit

189.5

183.0

168.1

180.2

Operating Expenses

179.9

177.8

166.5

174.8

Operating Income

9.6

5.2

1.5

5.4

Profit Level Indicator: OM

2.7%

1.7%

0.5%

1.8%

In USD Thousands

 

 

 

 

CIQ Business Description:

Lawson Products, Inc. distributes products and services to the industrial, commercial, institutional, and government maintenance, repair, and operations marketplace in the United States, Puerto Rico, Canada, Mexico, and the Caribbean. It operates in two segments, Lawson and Bolt. The company’s products include fastening systems, fluid power products, specialty chemicals, cutting tools and abrasives, electrical products, aftermarket automotive supplies, safety products, welding and metal repair products, and other products. It serves customers operating in the automotive repair, commercial vehicle maintenance, government, manufacturing, food processing, distribution, construction, oil and gas, mining, wholesale, service, and other industries. The company sells its products through sales representatives, as well as directly from its Website or through fax or phone. Lawson Products, Inc. was founded in 1952 and is headquartered in Chicago, Illinois.


MRC Global Inc.

FY December 31

2018

2017

2016

Average

Net Sales

4,172.0

3,646.0

3,041.0

3,619.7

Cost Of Goods Sold

3,483.0

3,058.0

2,568.0

3,036.3

Gross Profit

689.0

588.0

473.0

583.3

Operating Expenses

558.0

522.0

504.0

528.0

Operating Income

131.0

66.0

(31.0)

55.3

Profit Level Indicator: OM

3.1%

1.8%

-1.0%

1.5%

In USD Thousands

 

 

 

CIQ Business Description:

MRC Global Inc., through its subsidiaries, distributes pipes, valves, fittings, and other infrastructure products and services to the energy industry in the United States, Canada, and internationally. The company supplies products across various markets, such as upstream, midstream, and downstream. It offers ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves; and other products, such as lined corrosion resistant piping systems, control valves, valve automation products, and top work components, as well as measurement, steam, and instrumentation products. The company also provides carbon steel fittings and flanges, including carbon weld fittings, flanges, and piping components; stainless, alloy, and corrosion resistant pipes, tubing, fittings, and flanges; and carbon line pipes. In addition, it offers natural gas distribution products comprising risers, meters, polyethylene pipes and fittings, and various other components and industrial supplies; oilfield and industrial supplies and completion equipment consisting of high density polyethylene pipes, fittings, and rods; and specialized production equipment comprising tanks and separators. Further, the company provides various services, such as product testing, manufacturer assessments, multiple daily deliveries, volume purchasing, inventory and zone store management and warehousing, technical support, training, just-in-time delivery, truck stocking, order consolidation, product tagging, and system interfaces. Its products are used in the construction, maintenance, repair, and overhaul of equipment used in extreme operating conditions, including high pressure, high/low temperature, and high corrosive and abrasive environments. The company was formerly known as McJunkin Red Man Holding Corporation and changed its name to MRC Global Inc. in January 2012. MRC Global Inc. was founded in 1921 and is headquartered in Houston, Texas.


MSC Industrial Direct Co., Inc.

FY September 1

2018

2017

2016

Average

Net Sales

3,203.9

2,887.7

2,863.5

2,985.0

Cost Of Goods Sold

1,810.9

1,601.5

1,574.6

1,662.4

Gross Profit

1,393.0

1,286.2

1,288.9

1,322.7

Operating Expenses

942.1

907.2

912.9

920.8

Operating Income

450.9

379.0

376.0

401.9

Profit Level Indicator: OM

14.1%

13.1%

13.1%

13.5%

In USD Thousands

 

 

 

 

CIQ Business Description:

MSC Industrial Direct Co., Inc., together with its subsidiaries, distributes metalworking and maintenance, repair, and operations (MRO) products in the United States, Canada, and the United Kingdom. The company’s MRO products comprise cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock products, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components, and electrical supplies. It offers approximately 1,645,000 stock-keeping units through its catalogs; brochures; e-commerce channels, including its Website, mscdirect.com; inventory management solutions; and call-centers and branches. The company serves through its distribution network of 100 branch offices and 12 customer fulfillment centers. It serves individual machine shops, Fortune 100 manufacturing companies, and government agencies. The company was founded in 1941 and is headquartered in Melville, New York.


ScanSource, Inc.

FY June 30

2018

2017

2016

Average

Net Sales

3,846.3

3,568.2

3,540.2

3,651.6

Cost Of Goods Sold

3,410.1

3,184.6

3,184.8

3,259.8

Gross Profit

436.1

383.6

355.4

391.7

Operating Expenses

333.8

289.6

257.0

293.5

Operating Income

102.4

94.0

98.5

98.3

Profit Level Indicator: OM

2.7%

2.6%

2.8%

2.7%

In USD Millions

CIQ Business Description:

ScanSource, Inc. operates as a wholesale distributor of specialty technology products in North America and internationally. It operates in two segments, Worldwide Barcode & Security and Worldwide Communications & Services. The Worldwide Barcode & Security segment focuses on automatic identification and data capture (AIDC), point-of-sale (POS), networking, and electronic physical security technologies. Its AIDC and POS products are used to automate the collection, processing, and communication of information for commercial and industrial applications, such as retail sales, distribution, shipping, inventory control, materials handling, warehouse management, and health care applications; electronic physical security products, including identification, access control, video surveillance, intrusion-related, wireless, and networking infrastructure products; and 3D printing solutions to replace and complement traditional methods, as well as reduce the time and cost of designing new products. The Worldwide Communications & Services segment focuses on communications technologies and services. It provides voice and data products, such as private branch exchanges (PBX), key systems, and telephone handsets and components that are used in voice, fax, data, voice recognition, call center management, and IP communication applications; converged communication products, such as telephone and IP network interfaces, voice over Internet protocol systems, PBX integration products, and carrier-class board systems-level products; and video products comprising video and voice conferencing, and network systems. This segment also offers data networking products that include switches, servers, and routers; and provides value-added support programs and services, such as education and training, customer configuration, marketing services, network assessments, WiFi services, and partnership programs. ScanSource, Inc. was founded in 1992 and is headquartered in Greenville, South Carolina


SiteOne Landscape Supply, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

2,112.3

1,861.7

1,648.2

1,874.1

Cost Of Goods Sold

1,434.2

1,266.2

1,132.5

1,277.6

Gross Profit

678.1

595.5

515.7

596.4

Operating Expenses

571.2

497.1

441.7

503.3

Operating Income

106.9

98.4

74.0

93.1

Profit Level Indicator: OM

5.1%

5.3%

4.5%

5.0%

In USD Thousands

 

 

 

 

CIQ Business Description:

SiteOne Landscape Supply, Inc. engages in the wholesale distribution of landscape supplies in the United States and Canada. The company provides a selection of approximately 120,000 stock keeping units, including irrigation supplies, fertilizer and control products, landscape accessories, nursery goods, outdoor lightings, and ice melt products, as well as hardscapes, such as pavers, natural stones, and blocks. It also offers consultative services, which include assistance with irrigation network design, commercial project planning, generation of sales leads, marketing services and product support, and a series of technical and business management seminars; and distributes branded products of third parties. The company markets its products primarily to residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces through branch network and direct distribution. SiteOne Landscape Supply, Inc. is headquartered in Roswell, Georgia.

SPAR Group, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

229.2

181.4

134.3

181.6

Cost Of Goods Sold

184.9

144.6

104.8

144.8

Gross Profit

44.3

36.8

29.5

36.9

Operating Expenses

39.0

32.7

27.3

33.0

Operating Income

5.3

4.1

2.2

3.9

Profit Level Indicator: OM

2.3%

2.3%

1.6%

2.1%

In USD Millions

 

 

 

 

CIQ Business Description:

SPAR Group, Inc., together with its subsidiaries, provides merchandising and marketing services worldwide. The company’s syndicated services include product reordering and replenishment; ensuring its products for distribution; adding new products; implementing store planogram schematics; setting product category shelves; ensuring that product shelf tags are in place; checking for salability of the clients’ products; placing new product and promotional items in prominent positions; and kiosk replenishment and maintenance services for retailers, manufacturers, and distributors. Its dedicated services consist of syndicated services, as well as new store set-up, store remodel, and fixture installation services for a specific retailer or manufacturer. In addition, the company’s project services comprise specific in-store services initiated by retailers and manufacturers, such as new store openings, new product launches, special seasonal or promotional merchandising, focused product support, product recalls, and in-store product demonstration and sampling, as well as performs kiosk product replenishment, inventory control, new store sets and existing store resets, re-merchandising, remodels and category implementation, and under annual or stand-alone project contracts or agreements. Further, it assembles furniture, grills, and various other products in stores, homes, and offices; and offers in-store event staffing, retail compliance and price audit, mystery shopping, and data collection services. The company serves mass merchandisers; pharmacies; drug, grocery, office supply, dollar, convenience, specialty, electronic, and home improvement stores; and other retail outlets, including discount stores, in-home and in-office, etc. SPAR Group, Inc. was founded in 1967 and is headquartered in White Plains, New York.


Surge Components, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

32.4

29.8

29.6

30.6

Cost Of Goods Sold

24.1

22.3

22.1

22.8

Gross Profit

8.3

7.5

7.5

7.8

Operating Expenses

6.8

7.2

7.9

7.3

Operating Income

1.5

0.3

(0.5)

0.5

Profit Level Indicator: OM

4.7%

1.1%

-1.6%

1.5%

In USD Thousands

 

 

 

 

CIQ Business Description:

Surge Components, Inc. supplies electronic products and components in the United States. The company offers capacitors, which are electrical energy storage devices; and discrete components, such as semiconductor rectifiers, transistors, diodes, and circuit protection devices, as well as audible components, including audible transducers, buzzers, speakers, microphones, resonators, alarms, chimes, filters, and discriminators, as well as fuses, printed circuit boards, and switches. These products are used in the electronic circuitry of various products, including automobiles, telecomm, audio, cellular telephones, computers, consumer electronics, garage door openers, household appliances, power supplies, and security equipment. The company sells its products to original equipment manufacturers and distributors through independent sales representatives or organizations in the United States, Canada, China and other Asian countries, South America, and Europe. Surge Components, Inc. was founded in 1981 and is headquartered in Deer Park, New York .


Tech Data Corporation

FY January 31

2018

2017

2016

Average

Net Sales

37,239.0

33,597.8

24,193.7

31,676.8

Cost Of Goods Sold

34,983.1

31,482.2

22,891.8

29,785.7

Gross Profit

2,255.9

2,115.6

1,301.9

1,891.1

Operating Expenses

1,648.9

1,610.6

985.2

1,414.9

Operating Income

607.0

505.0

316.7

476.2

Profit Level Indicator: OM

1.6%

1.5%

1.3%

1.5%

In USD Millions

 

 

 

CIQ Business Description:

Tech Data Corporation engages in the wholesale distribution of technology products. It distributes and markets broadline products, such as notebooks, tablets, desktop systems, printers, supplies, and components; and data center products, including servers, proprietary servers, networking, and storage products. The company also offers software products, such as virtualization, cloud, security, desktop application, operating system, and utilities software; mobility products consisting of mobile phones and accessories; and consumer electronics comprising TV's, digital displays, consumer audio-visual devices, and network-attached consumer devices. In addition, it offers a range of customer services, such as training and technical support, customized shipping documents, product configuration/integration, and access to flexible financing programs; and a suite of electronic commerce tools. The company serves value-added resellers, direct marketers, retailers, and corporate resellers. Tech Data Corporation sells its products to customers in approximately 100 countries in North America, South America, Europe, the Middle East, and Africa. The company was founded in 1974 and is headquartered in Clearwater, Florida.


Uni-Select Inc.

FY December 31

2018

2017

2016

Average

Net Sales

1,752.0

1,448.3

1,197.3

1,465.9

Cost Of Goods Sold

1,176.8

983.2

830.7

996.9

Gross Profit

575.2

465.1

366.6

468.9

Operating Expenses

495.4

376.7

276.1

382.7

Operating Income

79.7

88.4

90.5

86.2

Profit Level Indicator: OM

4.6%

6.1%

7.6%

5.9%

In USD Thousands

CIQ Business Description:

Uni-Select Inc. distributes automotive refinish, and industrial paint and related products in the United States, Canada, and the United Kingdom. It operates through FinishMaster US, Canadian Automotive Group, and The Parts Alliance UK segments. The company also distributes automotive original equipment manufacturer and aftermarket parts. The company was founded in 1968 and is based in Boucherville, Canada.


Veritiv Corporation

FY December 31

2018

2017

2016

Average

Net Sales

8,696.2

8,364.7

8,326.6

8,462.5

Cost Of Goods Sold

7,155.7

6,846.6

6,826.4

6,942.9

Gross Profit

1,540.5

1,518.1

1,500.2

1,519.6

Operating Expenses

1,471.2

1,438.4

1,380.0

1,429.9

Operating Income

69.3

79.7

120.2

89.7

Profit Level Indicator: OM

0.8%

1.0%

1.4%

1.1%

In USD Thousands

 

 

 

 

CIQ Business Description:

Veritiv Corporation operates as a business-to-business distributor of print, publishing, packaging, and facility solutions in the United States, Canada, and Mexico. The company operates through four segments: Print, Publishing, Packaging, and Facility Solutions. The Print segment sells and distributes commercial printing, writing, copying, digital, wide format, and specialty paper products; and graphics consumables and graphics equipment. This segment also offers customized paper conversion services of commercial printing paper for distribution to document centers and form printers. The Publishing segment sells and distributes coated and uncoated commercial printing papers to publishers, retailers, converters, printers, and specialty businesses for use in magazines, catalogs, books, directories, gaming, couponing, retail inserts, and direct mail. This segment also provides print management, procurement, and supply chain management solutions. The Packaging segment provides standard and custom packaging solutions. The Facility Solutions segment sources and sells cleaning, break-room, and other supplies, such as towels, tissues, wipers and dispensers, can liners, commercial cleaning chemicals, soaps and sanitizers, sanitary maintenance supplies and equipment, safety and hazard supplies, and shampoos and amenities. In addition, it offers logistics and supply chain management solutions. The company offers its products under the Endurance, uBrand, nordic+, Econosource, Comet, Starbrite Opaque Select, porcelianECO 30, TUFflex, Reliable, and Spring Grove brands, as well as other brands. It operates approximately 180 distribution centers. The company's customers include printers, publishers, data centers, manufacturers, higher education institutions, healthcare facilities, sporting and performance arenas, retail stores, government agencies, property managers, and building service contractors. Veritiv Corporation was incorporated in 2013 is headquartered in Atlanta, Georgia.


Appendix 9: Sales – Retail/Direct to Business Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar products

Different functional activities/markets

3 Years of Losses

Rejection detail

1

1-800-FLOWERS.COM, Inc. (NasdaqGS:FLWS)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Provides gourmet food and floral gifts

2

A.M. Castle & Co. (OTCPK:CTAM)

5000 Durable goods - wholesale

 

X

 

Operates as a specialty metals distribution company

3

AAR Corp. (NYSE:AIR)

5000 Durable goods - wholesale

 

X

 

Provides products and services to commercial aviation, government, and defense markets

4

ADDvantage Technologies Group, Inc. (NasdaqGM:AEY)

5000 Durable goods - wholesale

 

X

 

Distributes and services electronics and hardware for the cable television and telecommunication industries

5

Advent-AWI Holdings Inc. (TSXV:AWI)

5990 Retail stores

 

X

 

Sells cellular and wireless products, services, and accessories through retail stores

6

Alliance Media Holdings Inc. (OTCPK:ADTR)

5000 Durable goods - wholesale

 

X

 

An integrated video game company, publishes and distributes video game consoles

7

A-Mark Precious Metals, Inc. (NasdaqGS:AMRK)

5000 Durable goods - wholesale

 

X

 

Operates as a precious metals trading company

8

Anixter International Inc. (NYSE:AXE)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of enterprise cabling and security solutions, electrical and electronic wire and cable solutions

9

Applied Industrial Technologies, Inc. (NYSE:AIT)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of industrial products

10

Arrow Electronics, Inc. (NYSE:ARW)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of semiconductor products

11

Avnet, Inc. (NasdaqGS:AVT)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electronic components

12

Barnes & Noble Education, Inc. (NYSE:BNED)

5940 Miscellaneous shopping goods stores

 

X

 

Operates bookstores for college and university campuses

13

Barnes & Noble, Inc. (NYSE:BKS)

5940 Miscellaneous shopping goods stores

 

X

 

Operates as a content and commerce company

14

Beacon Roofing Supply, Inc. (NasdaqGS:BECN)

5000 Durable goods - wholesale

 

X

 

Distributes residential and commercial roofing materials, and other complementary building materials

15

Big 5 Sporting Goods Corporation (NasdaqGS:BGFV)

5940 Miscellaneous shopping goods stores

 

X

 

A sporting goods retailer

16

Birks Group Inc. (AMEX:BGI)

5940 Miscellaneous shopping goods stores

 

X

 

Designs, develops, produces, and retails fine jewelry, timepieces, sterling and plated silverware

17

BlackPoll Fleet International, Inc. (OTCPK:BPOL)

5000 Durable goods - wholesale

 

X

 

Provides contract procurement, aviation business development, and aircraft management services

18

Blue Apron Holdings, Inc. (NYSE:APRN)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates direct-to-consumer platform that delivers original recipes, and fresh and seasonal ingredients

19

BlueLinx Holdings Inc. (NYSE:BXC)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of building and industrial products

20

Boise Cascade Company (NYSE:BCC)

5000 Durable goods - wholesale

 

X

 

Manufactures wood products and distributes building materials

21

Bravatek Solutions, Inc. (OTCPK:BVTK)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides security, defense, and information security solutions

22

BSQUARE Corporation (NasdaqGM:BSQR)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides software solutions and related engineering services

23

Build-A-Bear Workshop, Inc. (NYSE:BBW)

5940 Miscellaneous shopping goods stores

 

X

 

Operates as a specialty retailer of plush animals and related products

24

Candy Club Holdings Limited (ASX:CLB)

5960 Nonstore retailers

X

 

 

Sells confectionery products direct to consumer

25

CanWel Building Materials Group Ltd. (TSX:CWX)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of building materials and home renovation products

26

Carvana Co. (NYSE:CVNA)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates an e-commerce platform for buying used cars

27

CCOM Group, Inc. (OTCPK:CCOM)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of heating, ventilating, and air conditioning equipment

28

CDW Corporation (NasdaqGS:CDW)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

The company offers discrete hardware and software products, as well as integrated IT solutions, including mobility, security, data center optimization, cloud computing, virtualization, and collaboration

29

Copart, Inc. (NasdaqGS:CPRT)

5000 Durable goods - wholesale

 

X

 

Provides online auctions and vehicle remarketing services

30

Dick's Sporting Goods, Inc. (NYSE:DKS)

5940 Miscellaneous shopping goods stores

 

X

 

Operates as a sporting goods retailer

31

Duluth Holdings Inc. (NasdaqGS:DLTH)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

 

Sells casual wear, workwear, and accessories for men and women under the Duluth Trading brand

32

DXP Enterprises, Inc. (NasdaqGS:DXPE)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of maintenance, repair, and operating (MRO) products, equipment, and services

33

EACO Corporation (OTCPK:EACO)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electronic components and fasteners

34

Environmental Packaging Technologies Holdings, Inc. (OTCPK:EPTI)

5000 Durable goods - wholesale

 

X

 

Provides packaging solutions for the transport and storage of bulk products

35

ePlus inc. (NasdaqGS:PLUS)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides information technology (IT) products and services, flexible leasing and financing solutions

36

EVI Industries, Inc. (AMEX:EVI)

5000 Durable goods - wholesale

 

X

 

Distributes, leases, and rents commercial, industrial, and vended laundry and dry cleaning equipment

37

EVINE Live Inc. (NasdaqGS:EVLV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates as a digital commerce company

38

Fastenal Company (NasdaqGS:FAST)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of industrial and construction supplies

39

Finning International Inc. (TSX:FTT)

5000 Durable goods - wholesale

 

X

 

Engages in selling, servicing, and renting heavy equipment

40

Fuse Medical, Inc. (OTCPK:FZMD)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of medical devices

41

Genuine Parts Company (NYSE:GPC)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of automotive replacement, industrial parts and materials

42

Globe Photos, Inc. (OTCPK:GBPT)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Sells and manages classic and contemporary limited edition photographic images and reproductions

43

GMS Inc. (NYSE:GMS)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of wallboards, suspended ceilings systems, and related construction products

44

Goodfellow Inc. (TSX:GDL)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of lumber products, building materials, and hardwood flooring products

45

Goodfood Market Corp. (TSX:FOOD)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

A home meal solution service company

46

Greenlane Holdings, Inc. (NasdaqGM:GNLN)

5000 Durable goods - wholesale

X

 

 

Distributes consumption accessories and vaporization products

47

H&E Equipment Services, Inc. (NasdaqGS:HEES)

5000 Durable goods - wholesale

 

X

 

Operates as an integrated equipment services company

48

Hardwoods Distribution Inc. (TSX:HDI)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of hardwood lumber, plywood, medium density fiberboard, melamine

49

HD Supply Holdings, Inc. (NasdaqGS:HDS)

5000 Durable goods - wholesale

 

X

 

Operates as an industrial distributor

50

Henry Schein, Inc. (NasdaqGS:HSIC)

5000 Durable goods - wholesale

 

X

 

Provides health care products and services to dental practitioners and laboratories

51

Hibbett Sports, Inc. (NasdaqGS:HIBB)

5940 Miscellaneous shopping goods stores

 

X

 

Operates athletic specialty stores

52

Houston Wire & Cable Company (NasdaqGS:HWCC)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electrical and mechanical wire and cable, industrial fasteners, hardware

53

Huttig Building Products, Inc. (NasdaqCM:HBP)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of millwork, building materials, and wood products

54

ICTV Brands Inc. (OTCPK:ICTV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

A direct response marketing and international branding company

55

India Globalization Capital, Inc. (AMEX:IGC)

5000 Durable goods - wholesale

 

X

 

Engages in the development and commercialization of cannabis-based therapies

56

Inpixon (NasdaqCM:INPX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides big data analytics and location based products and related services for the cyber-security and Internet of things markets

57

Insight Enterprises, Inc. (NasdaqGS:NSIT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides information technology (IT) hardware, software, cloud, and service solutions

58

Jewett-Cameron Trading Company Ltd. (NasdaqCM:JCTC.F)

5000 Durable goods - wholesale

 

X

 

Manufactures and distributes specialty metal products

59

Kaman Corporation (NYSE:KAMN)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electro-mechanical products; bearings; and power transmission, motion control

60

Kirkland's, Inc. (NasdaqGS:KIRK)

5990 Retail stores

 

X

 

Operates as a specialty retailer of home décor

61

L.B. Foster Company (NasdaqGS:FSTR)

5000 Durable goods - wholesale

 

X

 

Manufactures and distributes products and services for the transportation and energy infrastructure

62

Lands' End, Inc. (NasdaqCM:LE)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates as a multi-channel retailer

63

Lawson Products, Inc. (NasdaqGS:LAWS)

5000 Durable goods - wholesale

 

X

 

Distributes products and services to the industrial, commercial, institutional, and government maintenance, repair, and operations marketplace

64

Liquidity Services, Inc. (NasdaqGS:LQDT)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Provides e-commerce marketplace solutions

65

LKQ Corporation (NasdaqGS:LKQ)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of replacement parts, components, and systems used in the repair and maintenance of vehicles

66

Meso Numismatics, Inc. (OTCPK:MSSV)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Sells coins, paper currency, bullion, and medals through live auctions

67

MRC Global Inc. (NYSE:MRC)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of pipes, valves, fittings, and other infrastructure products and services

68

MSC Industrial Direct Co., Inc. (NYSE:MSM)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of metalworking and maintenance, repair, and operations (MRO) products

69

National Vision Holdings, Inc. (NasdaqGS:EYE)

5990 Retail stores

 

X

 

Operates as an optical retailer

70

New Look Vision Group Inc. (TSX:BCI)

5990 Retail stores

 

X

 

Provides eye care products and services

71

NOW Inc. (NYSE:DNOW)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of energy and industrial products

72

Olympic Steel, Inc. (NasdaqGS:ZEUS)

5000 Durable goods - wholesale

 

X

 

Processes and distributes metal products

73

Overstock.com, Inc. (NasdaqGM:OSTK)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates as an online retailer

74

Owens & Minor, Inc. (NYSE:OMI)

5000 Durable goods - wholesale

 

X

 

Operates as a healthcare solutions company

75

Paragon Technologies, Inc. (OTCPK:PGNT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Engages in the material handling, distribution, real estate, and investments business activities

76

Park-Ohio Holdings Corp. (NasdaqGS:PKOH)

5000 Durable goods - wholesale

 

X

 

Provides supply chain management outsourcing services, capital equipment, and manufactured components

77

Patterson Companies, Inc. (NasdaqGS:PDCO)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of dental and animal health products

78

PhoneX Holdings, Inc. (OTCPK:PXHI)

5000 Durable goods - wholesale

 

X

 

Operates as a market maker of used smartphones

79

Pool Corporation (NasdaqGS:POOL)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of swimming pool supplies, equipment, and related leisure products

80

Qurate Retail, Inc. (NasdaqGS:QRTE.A)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Markets and sells various consumer products primarily through live video programs, Websites, and mobile applications

81

Real Matters Inc. (TSX:REAL)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Develops and provides technology and network management solutions

82

RedHawk Holdings Corp. (OTCPK:IDNG)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of medical devices

83

Regional Brands Inc. (OTCPK:RGBD)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of windows, doors, and related hardware

84

Reliance Steel & Aluminum Co. (NYSE:RS)

5000 Durable goods - wholesale

 

X

 

Operates as a metals service center company

85

Resideo Technologies, Inc. (NYSE:REZI)

5000 Durable goods - wholesale

 

X

 

Provides critical comfort, thermal, and security solutions

86

Richardson Electronics, Ltd. (NasdaqGS:RELL)

5000 Durable goods - wholesale

 

X

 

Engages in power and microwave technologies, customized display solutions, and healthcare equipment businesses

87

Richelieu Hardware Ltd. (TSX:RCH)

5000 Durable goods - wholesale

 

X

 

Distributes, and manufactures specialty hardware and complementary products

88

RumbleON, Inc. (NasdaqCM:RMBL)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Provides an e-commerce platform that facilitates consumers and dealers to buy, sell, trade, and finance pre-owned recreation vehicles

89

Russel Metals Inc. (TSX:RUS)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of steel and metal products

90

Ryerson Holding Corporation (NYSE:RYI)

5000 Durable goods - wholesale

 

X

 

Processes and distributes industrial metals wholesale

91

Sally Beauty Holdings, Inc. (NYSE:SBH)

5990 Retail stores

 

X

 

Operates as a specialty retailer and distributor of professional beauty supplies

92

ScanSource, Inc. (NasdaqGS:SCSC)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Wholesale distributor of technology products and solutions

93

Schnitzer Steel Industries, Inc. (NasdaqGS:SCHN)

5000 Durable goods - wholesale

 

X

 

Recycles ferrous and nonferrous scrap metals; and manufactures finished steel products

94

Sims Metal Management Limited (ASX:SGM)

5000 Durable goods - wholesale

 

X

 

Engages in buying, processing, and selling ferrous and non-ferrous recycled metals

95

SiteOne Landscape Supply, Inc. (NYSE:SITE)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of landscape supplies

96

Sleep Country Canada Holdings Inc. (TSX:ZZZ)

5990 Retail stores

 

X

 

Engages in retailing mattress and bedding related products

97

Sportsman's Warehouse Holdings, Inc. (NasdaqGS:SPWH)

5940 Miscellaneous shopping goods stores

 

X

 

Operates as an outdoor sporting goods retailer

98

Stitch Fix, Inc. (NasdaqGS:SFIX)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Sells a range of apparel, shoes, and accessories

99

Strongco Corporation (TSX:SQP)

5000 Durable goods - wholesale

 

X

 

Sells, rents, and services new and used equipment

100

Sugarmade, Inc. (OTCPK:SGMD)

5110 Paper and paper products - wholesale

 

X

 

Company produces and wholesales custom printed and generic supplies

101

Surge Components, Inc. (OTCPK:SPRS)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electronic products and components

102

SYNNEX Corporation (NYSE:SNX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides business process services to resellers, retailers

103

Sysorex, Inc. (OTCPK:SYSX)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Provides data analytics and location based solutions and services

104

Taitron Components Incorporated (NasdaqCM:TAIT)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of original designed and manufactured (ODM) electronic components, and distribution of brand name electronic components

105

Tandy Leather Factory, Inc. (NasdaqGM:TLF)

5990 Retail stores

X

 

 

Operates as a retailer and wholesale distributor of a range of leather and leathercraft related items

106

Tech Data Corporation (NasdaqGS:TECD)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Operates as an IT distribution and solutions company

107

TESSCO Technologies Incorporated (NasdaqGS:TESS)

5000 Durable goods - wholesale

 

X

 

Architects and delivers products and value chain solutions

108

The Michaels Companies, Inc. (NasdaqGS:MIK)

5940 Miscellaneous shopping goods stores

 

X

 

Owns and operates arts and crafts specialty retail stores

109

Tiffany & Co. (NYSE:TIF)

5940 Miscellaneous shopping goods stores

 

X

 

Designs, manufactures, and retails jewelry and other items

110

Toromont Industries Ltd. (TSX:TIH)

5000 Durable goods - wholesale

 

X

 

Involved in the sale, rental, and service of mobile equipment

111

Transcat, Inc. (NasdaqGM:TRNS)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of calibration and laboratory instrument services

112

TX Holdings, Inc. (OTCPK:TXHG)

5000 Durable goods - wholesale

 

X

 

Supplies, distributes, and sells drill bits, related tools, and other mining supplies and rail products

113

U.S. Auto Parts Network, Inc. (NasdaqGS:PRTS)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates as an online provider of aftermarket auto parts and accessories

114

Ulta Beauty, Inc. (NasdaqGS:ULTA)

5990 Retail stores

 

X

 

Operates as a beauty retailer

115

Uni-Select Inc. (TSX:UNS)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of automotive refinish, and industrial paint and related products

116

Universal Mfg. Co. (OTCPK:UFMG)

5000 Durable goods - wholesale

 

X

 

Remanufactures and distributes electric fuel pumps, transfer cases, calipers, transmission assembles

117

Vaso Corporation (OTCPK:VASO)

5000 Durable goods - wholesale

 

X

 

Focuses on healthcare IT and managed network technology services

118

Velocity Data Inc. (CNSX:VCT)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Engages in the sale of computer systems and related components primarily to government contractors and federal government end-users

119

Veritiv Corporation (NYSE:VRTV)

5110 Paper and paper products - wholesale

 

X

 

Wholesale distributor ofpackaging, facility solutions, print, and publishing products

120

Vet Online Supply, Inc. (OTCPK:VTNL)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

X

 

 

Engages in the online sale of pet products

121

W.W. Grainger, Inc. (NYSE:GWW)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of maintenance, repair, and operating (MRO) products and services

122

Wajax Corporation (TSX:WJX)

5000 Durable goods - wholesale

 

X

 

Provides sales, parts, and services to transportation, forestry, industrial and commercial, construction, oil sands companies

123

Watsco, Inc. (NYSE:WSO)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of air conditioning, heating, and refrigeration equipment

124

Wayfair Inc. (NYSE:W)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

 

X

Company has ongoing losses with no reported reorganization for improvement.

125

Wayside Technology Group, Inc. (NasdaqGM:WSTG)

5045 Computers, peripherals and software ; 5000 Durable goods - wholesale

 

X

 

Operates as an information technology channel company

126

Wesco Aircraft Holdings, Inc. (NYSE:WAIR)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of aerospace products and provides supply chain management services

127

WESCO International, Inc. (NYSE:WCC)

5000 Durable goods - wholesale

 

X

 

Wholesale distributor of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers products and construction materials

128

Western Capital Resources, Inc. (OTCPK:WCRS)

5990 Retail stores

 

X

 

Engages in the retail and financing business

129

Williams-Sonoma, Inc. (NYSE:WSM)

5961 Catalog and mail-order houses ; 5960 Nonstore retailers

 

X

 

Operates as a multi-channel specialty retailer of various products for home


Appendix 10: Sales – Retail/Direct to Business Selected Comparables' Business Description and Financials

Amazon.com, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

232,887.0

177,866.0

135,987.0

182,246.7

Cost Of Goods Sold

139,156.0

111,934.0

88,265.0

113,118.3

Gross Profit

93,731.0

65,932.0

47,722.0

69,128.3

Operating Expenses

81,310.0

61,826.0

43,536.0

62,224.0

Operating Income

12,421.0

4,106.0

4,186.0

6,904.3

Profit Level Indicator: OM

5.3%

2.3%

3.1%

3.8%

In USD Millions

 

 

 

 

CIQ Business Description:

Amazon.com, Inc. engages in the retail sale of consumer products in North America and internationally. It operates through the North America, International, and Amazon Web Services (AWS) segments. The company sells merchandise and content purchased for resale from vendors, as well as those offered by third-party sellers through retail Websites, such as amazon.com, amazon.ca, amazon.com.mx, amazon.com.au, amazon.com.br, amazon.cn, amazon.fr, amazon.de, amazon.in, amazon.it, amazon.co.jp, amazon.nl, amazon.es, and amazon.co.uk. It also manufactures and sells electronic devices, including kindle e-readers, fire tablets, fire TVs, and echo, as well as fire phones; and provides Kindle Direct Publishing, an online platform that allows independent authors and publishers to make their books available in the Kindle Store. In addition, the company offers programs that enable sellers to sell their products on its Websites, as well as their own branded Websites; and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Further, it offers compute, storage, database, and other AWS services, as well as fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit card agreements services. Additionally, the company offers Amazon Prime, an annual membership program, which provides free shipping of various items; access to unlimited streaming of movies and TV episodes; and other services. It serves consumers, sellers, developers, enterprises, and content creators. The company was founded in 1994 and is headquartered in Seattle, Washington.


Bluestem Group Inc.

FY February 1

2018

2017

2016

Average

Net Sales

1,798.1

1,891.6

2,100.6

1,930.1

Cost Of Goods Sold

1,093.0

1,157.9

1,290.5

1,180.5

Gross Profit

705.2

733.6

810.1

749.6

Operating Expenses

663.6

724.4

852.1

746.7

Operating Income

41.6

9.2

(41.9)

2.9

Profit Level Indicator: OM

2.3%

0.5%

-2.0%

0.2%

In USD Millions

CIQ Business Description:

Bluestem Group Inc., through its subsidiaries, offers a selection of name-brand, private label, and non-branded merchandise through Internet Websites and catalog serving low to middle income consumers in the United States. It operates through Northstar Portfolio and Orchard Portfolio segments. The Northstar Portfolio segment consists of Fingerhut and Gettington retail brands. This segment offers consumer electronics, domestics, housewares, and home furnishings. The Orchard Portfolio segment comprises of Tog Shop and WinterSilks retail brands. This segment provides apparel, accessories, and home products for women and men through various platforms, including online and direct mail. Bluestem Group Inc. also offers bed and bath, lawn and garden, and hardware products; video games, toys, and sporting goods; and footwear, cosmetics, fragrances, and jewelry products. The company was formerly known as Capmark Financial Group Inc. and changed its name to Bluestem Group Inc. in June 2015. Bluestem Group Inc. was incorporated in 1998 and is headquartered in Eden Prairie, Minnesota.


Indigo Books & Music Inc.

FY March 30

2018

2017

2016

Average

Net Sales

783.2

837.2

765.3

795.2

Cost Of Goods Sold

463.8

468.5

424.5

452.2

Gross Profit

319.4

368.8

340.8

343.0

Operating Expenses

359.6

348.1

322.6

343.5

Operating Income

(40.2)

20.6

18.2

(0.4)

Profit Level Indicator: OM

-5.1%

2.5%

2.4%

-0.1%

In USD Millions

 

 

 

 

CIQ Business Description:

Indigo Books & Music Inc. operates as a book, gift, and specialty toy retailer in Canada. The company also offers kids, toy, baby, home, fashion, paper, and electronics products. As of March 31, 2018, it operated 86 superstores and 123 small format stores under the Indigo, Chapters, Coles, Indigospirit, and The Book Company names. It also sells its products through indigo.ca Website; and mobile applications. In addition, the company sells calendars, games, and gifts in approximately 200 seasonal kiosks and year-round stores in shopping malls. Indigo Books & Music Inc. was founded in 1940 and is headquartered in Toronto, Canada.


Office Depot, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

11,015.0

10,240.0

11,021.0

10,758.7

Cost Of Goods Sold

8,464.0

7,779.0

8,313.0

8,185.3

Gross Profit

2,551.0

2,461.0

2,708.0

2,573.3

Operating Expenses

2,186.0

2,028.0

2,246.0

2,153.3

Operating Income

365.0

433.0

462.0

420.0

Profit Level Indicator: OM

3.3%

4.2%

4.2%

3.9%

In USD Millions

CIQ Business Description:

Office Depot, Inc., together with its subsidiaries, supplies office products and services. It operates in three segments: North American Retail, North American Business Solutions, and International. The company sells office supplies, technology products and solutions, business machines and related supplies, facilities products, and office furniture. It also offers copy and print services. The company sells its products and services to consumers and businesses through office supply stores, a contract sales force, Internet sites, an outbound telephone account management sales force, direct marketing catalogs, and call centers, as well as participates under licensing and merchandise arrangements in Latin America, Europe, Israel, and Japan. As of December 26, 2015, it operated 1,564 stores in the United States, including Puerto Rico and the U.S. Virgin Islands; and 147 stores in France, South Korea, Sweden, New Zealand, and Australia. The company offers its products under various labels, including Office Depot, OfficeMax, Foray, Ativa, TUL, Realspace, WorkPro, Brenton Studio, Highmark, Grand & Toy, and Viking Office Products. Office Depot, Inc. was founded in 1986 and is headquartered in Boca Raton, Florida.


PC Connection, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

2,699.5

2,911.9

2,692.6

2,768.0

Cost Of Goods Sold

2,288.4

2,529.8

2,321.4

2,379.9

Gross Profit

411.1

382.1

371.2

388.1

Operating Expenses

324.4

300.9

287.2

304.2

Operating Income

86.7

81.2

83.9

83.9

Profit Level Indicator: OM

3.2%

2.8%

3.1%

3.0%

In USD Millions

 

 

 

 

CIQ Business Description:

PC Connection, Inc. provides a range of information technology (IT) solutions. The company operates through three segments: SMB, Large Account, and Public Sector. It offers IT products, such as computer systems, software and peripheral equipment, networking communications, and other products and accessories. The company also provides services comprising design, configuration, and implementation of IT solutions. It markets its products and services through its Websites, such as pcconnection.com, moredirect.com, govconnection.com, and macconnection.com. The company also publishes various catalogs, including PC Connection focusing on PCs and compatible products; and MacConnection focusing on Apple personal computers and compatible products. In addition, it issues specialty catalogs, such as GovConnection catalogs directed to government and educational institutions; and Connection Magazine directed to mid-market, enterprise, and healthcare customers. PC Connection, Inc. serves small to medium-sized businesses (SMBs) comprising small office/home offices customers; government and educational institutions; and medium-to-large corporate accounts. The company was founded in 1982 and is headquartered in Merrimack, New Hampshire.


PCM, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

2,164.0

2,166.9

2,239.6

2,190.1

Cost Of Goods Sold

1,820.0

1,842.2

1,920.6

1,860.9

Gross Profit

343.9

324.7

318.9

329.2

Operating Expenses

302.7

310.5

284.2

299.1

Operating Income

41.2

14.2

34.7

30.0

Profit Level Indicator: OM

1.9%

0.7%

1.5%

1.4%

In USD Millions

 

 

 

CIQ Business Description:

PCM, Inc. operates as a multi-vendor provider of technology products and solutions, and other consumer products to commercial businesses; state, local, and federal governments; and educational institutions primarily in the United States and Canada. The company operates through four segments: Commercial, Public Sector, MacMall, and Canada. It primarily sells device products, servers, storage products, networks, printers, and related accessories and devices. The company also provides value-added services, such as custom configured systems, software licensing asset management, image management, product asset tagging, and asset disposal services, as well as software value-added reseller services, managed services, cloud-based services, consulting, and IT management and related services. PCM, Inc. markets its products, services, and solutions through its sales force, field and internal service teams, direct marketing channels, and data centers. The company was formerly known as PC Mall, Inc. and changed its name to PCM, Inc. in December 2012. PCM, Inc. was founded in 1987 and is headquartered in El Segundo, California.


School Specialty, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

673.5

658.4

656.3

662.7

Cost Of Goods Sold

447.0

422.1

422.9

430.7

Gross Profit

226.5

236.2

233.4

232.0

Operating Expenses

218.6

207.8

207.4

211.2

Operating Income

7.9

28.5

26.0

20.8

Profit Level Indicator: OM

1.2%

4.3%

4.0%

3.1%

In USD Millions

 

 

 

 

CIQ Business Description:

School Specialty, Inc., together with its subsidiaries, distributes supplies, furniture, technology products, supplemental learning products, and curriculum solutions to the education marketplace in the United States and Canada. The company’s Distribution segment offers office products, classroom supplies, janitorial and sanitation supplies, school equipment, planning and development products, physical education products, art supplies and paper, and others; supplemental learning materials, teaching resources, special needs and education products, early childhood offerings, classroom technology, planning and student development, and school health and furniture; and project management and design services for school refurbishment and new construction projects. This segment provides its products primarily under the Childcraft, Sax Arts & Crafts, Califone, Premier Agendas, Classroom Select, Sportime, Abilitations, Hammond & Stephens, SPARK, Brodhead Garrett, School Smart, Royal Seating, and Projects by Design brands. Its Curriculum segment develops standards-based curriculum products, supplemental and intervention curriculum materials, instructional programs, and student assessment tools in the areas of science, math, and reading and math intervention, as well as comprehension, vocabulary, spelling, and grammar. This segment sells its products to teachers, curriculum specialists, and other educators under various product lines, such as Delta Education, FOSS, CPO Science, Frey Scientific, Educator’s Publishing Service, Academy of Reading, Academy of Math, Wordly Wise 3000, Explode the Code, ThinkMath!, Making Connections, and S.P.I.R.E. The company offers its products through its sales force, catalogs, and its proprietary e-commerce Websites. School Specialty, Inc. was founded in 1959 and is headquartered in Greenville, Wisconsin.

Stamps.com Inc.

FY December 31

2018

2017

2016

Average

Net Sales

586.9

468.7

364.3

473.3

Cost Of Goods Sold

126.9

79.2

63.0

89.7

Gross Profit

460.0

389.5

301.3

383.6

Operating Expenses

263.1

227.9

181.1

224.0

Operating Income

196.9

161.6

120.2

159.6

Profit Level Indicator: OM

33.5%

34.5%

33.0%

33.7%

In USD Millions

 

 

 

 

CIQ Business Description:

Stamps.com Inc. provides Internet-based postage solutions in the United States. It offers solutions for mailing and shipping various mail pieces, such as postcards, envelopes, flats, and packages using a range of United States Postal Service (USPS) mail classes, including First Class Mail, Priority Mail, Priority Mail Express, Media Mail, Parcel Select, and others. The company's products and services comprise USPS approved PC Postage service that enables users to print electronic stamps directly onto envelopes, plain paper, or labels using personal computer, printer, and Internet connection. It also provides multi carrier shipping solutions under the ShipStation and ShipWorks brands; mailing and shipping integration solutions comprising electronic postage for transactions to partners who manage the front-end process; sells NetStamps labels, DYMO Stamp labels, shipping labels, other mailing labels, dedicated postage printers, scales, and other mailing and shipping-focused office supplies through its mailing and shipping supplies store; and Stamps.com branded insurance to insure mails or packages. In addition, the company offers PhotoStamps, a patented form of postage service, which allows consumers to turn digital photos, designs, or images into USPS-approved postages. It serves individuals, small businesses, home offices, medium-size businesses, and large enterprises. The company was formerly known as StampMaster, Inc. and changed its name to Stamps.com Inc. in December 1998. Stamps.com Inc. was founded in 1996 and is headquartered in El Segundo, California.


Systemax Inc.

FY December 31

2018

2017

2016

Average

Net Sales

896.9

791.8

753.1

813.9

Cost Of Goods Sold

589.2

518.6

514.9

540.9

Gross Profit

307.7

273.2

238.2

273.0

Operating Expenses

248.3

227.2

226.3

233.9

Operating Income

59.4

46.0

11.9

39.1

Profit Level Indicator: OM

6.6%

5.8%

1.6%

4.8%

In USD Millions

 

 

 

CIQ Business Description:

Systemax Inc. operates as a direct marketer of brand name and private label products. Its Industrial Products Group segment sells a range of maintenance, repair, and operation products, including electrical and bulbs; fasteners and hardware; foodservice and appliances; furniture and office products; HVAC/R fans; janitorial and maintenance; material handling; medical and laboratory equipment; metalworking and cutting tools; motors and power transmission products; office and school supplies; outdoor and grounds maintenance products; packaging and supplies; plumbing supplies; pneumatics and hydraulics; raw materials and building supplies; safety and security products; storage and shelving products; tools and instruments; and vehicle maintenance, and workbench and shop desks in North America. The company's EMEA Technology Products Group segment sells information and communication technology products, such as computers and mobile devices; computer parts and memory products; servers, and storage and backup products; computer components and accessories; networking and security products; software products; and electronics, and commercial and home networking products. This segment also offers consumer electronics comprising TV and video, audio, and GPS products; cameras and surveillance products; cell phones; video games and toys; and home and electronics accessories. The company offers its products to for-profit businesses, educational organizations, and government entities through its relationship marketers, catalog mailings, and proprietary Internet Websites. Systemax Inc. was founded in 1949 and is headquartered in Port Washington, New York.

Appendix 11: IT Services Comparables' Selection Matrix

#

Company Name

SIC Codes

Dissimilar services or wider range of services

Different functional activities/markets

Subsidiary

Different geographic market

3 Years of Losses

Rejection detail

1

Advantex Marketing International Inc. (CNSX:ADX)

8742 Management consulting services

X

 

 

 

 

Operates in the marketing services industry

2

Affinion Group Holdings, Inc. (OTCPK:AFGR)

7389 Business services

X

 

 

 

 

Engages in designing, marketing, and servicing customer engagement and loyalty solutions.

3

Agora Holdings, Inc. (OTCPK:AGHI)

-

 

X

 

 

 

Engages in the software development business

4

Alithya Group Inc. (TSX:ALYA)

-

 

 

 

 

X

3 years of operating losses

5

ALJ Regional Holdings, Inc. (NasdaqGM:ALJJ)

7374 Data processing and preparation

 

 

 

X

 

Operates in South Korea

6

Alliance Data Systems Corporation (NYSE:ADS)

7374 Data processing and preparation

X

 

 

 

 

Provides marketing and loyalty solutions

7

AMERI Holdings, Inc. (NasdaqCM:AMRH)

-

X

 

 

 

 

Provides SAP cloud and digital enterprise services

8

American Cannabis Company, Inc. (OTCPK:AMMJ)

8742 Management consulting services

 

X

 

 

 

Provides solutions for businesses operating in the regulated cannabis industry

9

AMN Healthcare Services, Inc. (NYSE:AMN)

7361 Employment agencies

X

 

 

 

 

Provides workforce and staffing solutions

10

AMREP Corporation (NYSE:AXR)

7389 Business services

X

 

 

 

 

Provides real estate and fulfillment services

11

AmTrust Financial Services, Inc.

7374 Data processing and preparation

 

X

 

 

 

Provides property and casualty insurance

12

ARC Document Solutions, Inc. (NYSE:ARC)

7389 Business services

 

X

 

 

 

Reprographics company

13

ATW Tech Inc. (TSXV:ATW)

7389 Business services

 

X

 

 

 

Provides information technology solutions

14

Automatic Data Processing, Inc. (NasdaqGS:ADP)

7374 Data processing and preparation

X

 

 

 

 

Provides business process outsourcing services

15

Avanceon Limited (KASE:AVN)

-

 

X

 

 

 

Provides industrial automation, process control and systems integration, and energy management solutions

16

B. Riley Financial, Inc. (NasdaqGM:RILY)

7389 Business services

 

X

 

 

 

Provides collaborative financial services and solutions

17

Bexar Ventures Inc. (CNSX:BXV)

-

 

X

 

 

 

Operates as a software development company t

18

Black Knight, Inc. (NYSE:BKI)

7374 Data processing and preparation

 

X

 

 

 

Provides integrated software, data, and analytics solutions

19

Blackhawk Network Holdings, Inc.

7374 Data processing and preparation

 

X

 

 

 

Provides a range of prepaid gift, telecom, and debit cards in physical and electronic forms

20

Booz Allen Hamilton Holding Corporation (NYSE:BAH)

-

X

 

 

 

 

Provides management and technology, consulting, and engineering services

21

Broadridge Financial Solutions, Inc. (NYSE:BR)

7373 Computer integrated systems design

 

X

 

 

 

Provides investor communications and technology-driven solutions

22

Butler National Corporation (OTCPK:BUKS)

8741 Management services

 

X

 

 

 

Provides aerospace products and professional services

23

CACI International Inc (NYSE:CACI)

7373 Computer integrated systems design

 

X

 

 

 

Provides information solutions and services to the government

24

Calian Group Ltd. (TSX:CGY)

7374 Data processing and preparation

X

 

 

 

 

Engages in systems engineering, and business and technology services activities

25

CardConnect Corp.

7374 Data processing and preparation

 

X

 

 

 

Provides payment processing solutions

26

Cardtronics plc (NasdaqGS:CATM)

7389 Business services

X

 

 

 

 

Provides automated consumer financial services

27

Cartesian, Inc.

8742 Management consulting services

X

 

 

 

 

Management consulting company

28

Cass Information Systems, Inc. (NasdaqGS:CASS)

7389 Business services

X

 

 

 

 

Provides payment and information processing services

29

CGI Inc. (TSX:GIB.A)

7373 Computer integrated systems design

X

 

 

 

 

Provides information technology and business process services

30

Cinedigm Corp. (NasdaqGM:CIDM)

7389 Business services

 

X

 

 

 

Operates as distributor and aggregator of independent movie, television, and other short form content

31

Collectors Universe, Inc. (NasdaqGM:CLCT)

7389 Business services

X

 

 

 

 

Provides cloud-based information and performance marketing solutions

32

Computer Task Group, Incorporated (NasdaqGS:CTG)

-

X

 

 

 

 

Operates as an information technology (IT) solutions and staffing services company

33

Conduent Incorporated (NYSE:CNDT)

7374 Data processing and preparation

X

 

 

 

 

Offers payment integrity, support, member engagement, health risk assessment, claims processing, mailroom, and outbound printing services

34

Converge Technology Solutions Corp. (TSXV:CTS)

-

 

X

 

 

 

Provides IT solutions to corporate and government institutions

35

ConvergeOne Holdings, Inc.

-

 

X

 

 

 

Provides collaboration and technology solutions

36

Convergys Corporation

7389 Business services

X

 

 

 

 

Provides customer management services

37

CoreLogic, Inc. (NYSE:CLGX)

7374 Data processing and preparation

X

 

 

 

 

Provides property information, analytics, and data-enabled services

38

Cotiviti Holdings, Inc.

7389 Business services

 

X

 

 

 

Develops and sells analytics-driven payment accuracy solutions

39

CSP Inc. (NasdaqGM:CSPI)

7373 Computer integrated systems design

X

 

 

 

 

Develops and markets IT integration solutions and cluster computer systems

40

Cynergistek, Inc. (AMEX:CTEK)

7374 Data processing and preparation

 

X

 

 

 

Provides outsourced document solutions, IT consulting data security, and managed print services

41

Data Storage Corporation (OTCPK:DTST)

-

 

X

 

 

 

Provides disaster recovery, business continuity, cloud storage, and cloud computing solutions and services

42

Datametrex AI Limited (TSXV:DM)

7374 Data processing and preparation

 

X

 

 

 

Focuses on collecting, analyzing, and presenting structured and unstructured data using machine learning and artificial intelligence

43

Dealnet Capital Corp. (TSXV:DLS)

7374 Data processing and preparation

 

X

 

 

 

Operates in consumer finance and engagement businesses

44

Decision Diagnostics Corp. (OTCPK:DECN)

7373 Computer integrated systems design

 

X

 

 

 

Develops smart phone based remote electronic medical record technologies

45

Document Security Systems, Inc. (AMEX:DSS)

7373 Computer integrated systems design

 

X

 

 

 

Engages in the development, management, marketing, and sale of paper and plastic products

46

DST Systems, Inc.

7374 Data processing and preparation

X

 

 

 

 

Provides technology-based information processing and servicing solutions

47

DXC Technology Company (NYSE:DXC)

-

 

X

 

 

 

Provides information technology services and solutions

48

DynTek, Inc. (OTCPK:DYNE)

7373 Computer integrated systems design

X

 

 

 

 

Offers infrastructure and data center solutions, including advanced networking, security, server virtualization, and servers and storage solutions

49

Edgewater Technology, Inc.

-

 

 

X

 

 

Acquired by Alithya Group Inc.

50

Ellipsiz Communications Ltd. (TSXV:ECT)

7373 Computer integrated systems design

 

 

 

X

 

Provides communications services and solutions in Taiwan

51

Emerald Expositions Events, Inc. (NYSE:EEX)

7389 Business services

 

X

 

 

 

Operates business-to-business (B2B) trade shows

52

EPAM Systems, Inc. (NYSE:EPAM)

-

 

X

 

 

 

Provides software product development and digital platform engineering services

53

EVERTEC, Inc. (NYSE:EVTC)

7374 Data processing and preparation

 

X

 

 

 

Engages in transaction processing business

54

EVO Payments, Inc. (NasdaqGM:EVOP)

7374 Data processing and preparation

 

X

 

 

 

Operates as an integrated merchant acquirer and payment processor

55

Exela Technologies, Inc. (NasdaqCM:XELA)

7374 Data processing and preparation

 

X

 

 

 

Operates as a location-agnostic global business process automation (BPA) provider

56

ExlService Holdings, Inc. (NasdaqGS:EXLS)

7374 Data processing and preparation

X

 

 

 

 

Provides operations management solutions and analytics

57

Exponent, Inc. (NasdaqGS:EXPO)

8742 Management consulting services

X

 

 

 

 

Operates as a science and engineering consulting company

58

Fidelity National Information Services, Inc. (NYSE:FIS)

7374 Data processing and preparation

X

 

 

 

 

A financial services technology company

59

First Data Corporation (NYSE:FDC)

7374 Data processing and preparation

X

 

 

 

 

Provides electronic commerce solutions

60

Fiserv, Inc. (NasdaqGS:FISV)

7374 Data processing and preparation

X

 

 

 

 

A financial services technology company

61

FleetCor Technologies, Inc. (NYSE:FLT)

7374 Data processing and preparation

 

X

 

 

 

Provides fuel cards, commercial payment and data solutions, stored value solutions, and workforce payment products and services

62

Fluent, Inc. (NasdaqGM:FLNT)

8742 Management consulting services

X

 

 

 

 

Provides data-driven digital marketing services

63

FullCircle Registry, Inc.

7389 Business services

 

X

 

 

 

Operates in the movie theater entertainment business

64

Gartner, Inc. (NYSE:IT)

-

X

 

 

 

 

Operates as a research and advisory company

65

GEE Group, Inc. (AMEX:JOB)

7361 Employment agencies

X

 

 

 

 

Provides staffing services

66

Genie Gateway (OTCPK:GGWY)

7374 Data processing and preparation

 

X

 

 

 

Provides unified communications and payment processing services on a single platform

67

Global Payments Inc. (NYSE:GPN)

7374 Data processing and preparation

X

 

 

 

 

Provides payment solutions

68

Glorious Creation Limited (CNSX:GCIT)

-

 

X

 

 

 

Operates an e-commerce platform that provides various IT services and logistics management for the execution of commerce; and a business to business online marketplace

69

Gopher Protocol Inc. (OTCPK:GOPH)

-

 

X

 

 

 

A development-stage company

70

Grand Perfecta, Inc. (OTCPK:GPIW)

7379 Computer related services

 

X

 

 

 

Engages in gathering, publishing, and disseminating horse racing information

71

Green Dot Corporation (NYSE:GDOT)

7389 Business services

X

 

 

 

 

Operates as a pro-consumer technology bank holding company

72

GSE Systems, Inc. (NasdaqCM:GVP)

7361 Employment agencies

 

X

 

 

 

Provides simulation, training, and engineering solutions

73

Healthcare Integrated Technologies Inc. (OTCPK:HITC)

8742 Management consulting services

X

 

 

 

 

Provides staffing services

74

HealthLynked Corp. (OTCPK:HLYK)

7374 Data processing and preparation

 

X

 

 

 

Provides online platform for healthcare providers and patients

75

HealthSpace Data Systems Ltd. (CNSX:HS)

7371 Computer programming services

 

X

 

 

 

Develops and sells information and communication management systems

76

Heidrick & Struggles International, Inc. (NasdaqGS:HSII)

7361 Employment agencies

X

 

 

 

 

Provides executive search and consulting services

77

Hill International, Inc. (NYSE:HIL)

8741 Management services

X

 

 

 

 

Provides program management, project management, construction management, construction claims, and other consulting services

78

Hudson Global, Inc (NasdaqGS:HSON)

7361 Employment agencies

X

 

 

 

 

Professional-level recruitment and related talent solutions

79

Huron Consulting Group Inc. (NasdaqGS:HURN)

8742 Management consulting services

X

 

 

 

 

Provides advisory, consulting, technology, and analytic solutions

80

i3 Verticals, Inc. (NasdaqGS:IIIV)

7374 Data processing and preparation

 

X

 

 

 

Provides integrated payment and software solutions

81

IBI Group Inc. (TSX:IBG)

8742 Management consulting services

X

 

 

 

 

Its professional services include planning, design, implementation, analysis of operations, and other consulting services related to intelligence, buildings, and infrastructure areas

82

ICF International, Inc. (NasdaqGS:ICFI)

8742 Management consulting services

X

 

 

 

 

Provides management, technology, and policy consulting and implementation services

83

Imex Systems Inc. (TSXV:IMEX)

-

 

X

 

 

 

Provides technology and solutions for e-government, smart cities, and digital payments

84

Information Analysis Incorporated (OTCPK:IAIC)

7371 Computer programming services

 

X

 

 

 

Engages in developing and maintaining information technology (IT) systems, modernizing client information systems, and performing professional services

85

InnerWorkings, Inc. (NasdaqGS:INWK)

7389 Business services

 

X

 

 

 

Provides marketing execution solutions

86

Innodata Inc. (NasdaqGM:INOD)

7374 Data processing and preparation

X

 

 

 

 

A digital services and solutions company

87

Inpixon (NasdaqCM:INPX)

-

 

X

 

 

 

Provides big data analytics and location based products and related services

88

InterCloud Systems, Inc. (OTCPK:ICLD)

-

X

 

 

 

 

The company offers various services, including platform as a service, infrastructure as a service, database as a service, and software as a service

89

Internap Corporation (NasdaqGS:INAP)

7374 Data processing and preparation

X

 

 

 

 

Provides data center infrastructure, cloud solutions, and network services

90

International Road Dynamics Inc.

7373 Computer integrated systems design

 

X

 

 

 

Operates as a highway traffic management products and systems technology company

91

ITEX Corporation (OTCPK:ITEX)

7389 Business services

X

 

 

 

 

Operates an online marketplace

92

Jackpot Digital Inc. (TSXV:JP)

7373 Computer integrated systems design

 

X

 

 

 

Develops and provides electronic table games

93

KAR Auction Services, Inc. (NYSE:KAR)

7389 Business services

 

X

 

 

 

Provides vehicle auction services

94

KBR, Inc. (NYSE:KBR)

-

 

X

 

 

 

Provides professional services and technologies across the asset and program life-cycle within the government services and hydrocarbons industries

95

Korn Ferry (NYSE:KFY)

7361 Employment agencies

 

X

 

 

 

Provides talent management solutions

96

Lasco Financial Services Limited (JMSE:LASF)

7374 Data processing and preparation

 

 

 

X

 

Provides a range of financial services to customers in Jamaica

97

Leidos Holdings, Inc. (NYSE:LDOS)

7373 Computer integrated systems design

 

X

 

 

 

An applied technology company servicing governments

98

LiteLink Technologies Inc. (CNSX:LLT)

-

X

 

 

 

 

Provides blockchain consulting and development services

99

Magellan Health, Inc. (NasdaqGS:MGLN)

8741 Management services

 

X

 

 

 

Engages in the healthcare management business

100

Main Event Entertainment Group Limited (JMSE:MEEG)

7389 Business services

 

 

 

X

 

Provides entertainment promotion, agency, and management services in Jamaica and the Caribbean

101

ManTech International Corporation (NasdaqGS:MANT)

7373 Computer integrated systems design

X

 

 

 

 

Provides technologies and solutions for mission-critical national security programs

102

Marathon Patent Group, Inc. (NasdaqCM:MARA)

7374 Data processing and preparation

 

X

 

 

 

Focuses on mining digital assets

103

MAXIMUS, Inc. (NYSE:MMS)

8741 Management services

 

X

 

 

 

Provides business process services (BPS) to government health and human services programs

104

Midwest Holding Inc. (OTCPK:MDWT)

8741 Management services

 

X

 

 

 

A financial services holding company

105

MJardin Group, Inc. (CNSX:MJAR)

8741 Management services

 

X

 

 

 

Operates as a specialized cannabis management company

106

MoneyOnMobile, Inc. (OTCPK:MOMT)

7374 Data processing and preparation

 

X

 

 

 

Provides digital payment services

107

Morneau Shepell Inc. (TSX:MSI)

8742 Management consulting services

X

 

 

 

 

Operates as a human resources consulting and technology company

108

National Research Corporation (NasdaqGS:NRC)

7389 Business services

 

X

 

 

 

Provides analytics and insights that facilitate revenue growth, patient, employee and customer retention, and patient engagement

109

Navigant Consulting, Inc. (NYSE:NCI)

8742 Management consulting services

X

 

 

 

 

Provides professional services to corporate executives and senior management, corporate counsel, and special committees

110

nDivision Inc. (OTCPK:NDVN)

-

 

 

 

 

X

Predominantly loss-making

111

Nerds on Site Inc. (CNSX:NERD)

-

X

 

 

 

 

Provides mobile information technology (IT) support services

112

Net Element, Inc. (NasdaqCM:NETE)

7374 Data processing and preparation

 

X

 

 

 

A global payments-as-a-service company

113

Novation Companies, Inc. (OTCPK:NOVC)

7361 Employment agencies

X

 

 

 

 

Provides outsourced health care staffing and related services

114

Novume Solutions, Inc. (NasdaqCM:NVMM)

8742 Management consulting services

 

X

 

 

 

Provides consulting and technical support services to government contracting market

115

Nukkleus Inc. (OTCPK:NUKK)

8742 Management consulting services

 

X

 

 

 

A financial technology company

116

OmniComm Systems, Inc. (OTCPK:OMCM)

7373 Computer integrated systems design

 

X

 

 

 

Operates as a healthcare technology company

117

People Corporation (TSXV:PEO)

8742 Management consulting services

X

 

 

 

 

Provides group benefits, group retirement, and human resource services

118

Perspecta Inc. (NYSE:PRSP)

-

 

X

 

 

 

Provides enterprise information technology (IT) services to government customers

119

PFSweb, Inc. (NasdaqCM:PFSW)

7374 Data processing and preparation

X

 

 

 

 

Offers strategic commerce consulting services

120

Pharma-Bio Serv, Inc. (OTCPK:PBSV)

8742 Management consulting services

 

X

 

 

 

A compliance and technology transfer services consulting company

121

Pivot Technology Solutions, Inc. (TSX:PTG)

-

 

X

 

 

 

Private equity firm

122

Presidio, Inc. (NasdaqGS:PSDO)

-

 

X

 

 

 

The company offers digital infrastructure solutions that enable clients to deploy IT infrastructure

123

Priority Technology Holdings, Inc. (NasdaqCM:PRTH)

7374 Data processing and preparation

 

X

 

 

 

Provides merchant acquiring and commercial payment solutions

124

Quest Solution, Inc. (OTCPK:QUES)

-

 

X

 

 

 

Operates as a systems integrator with a focus on design, delivery, deployment, and support of integrated mobile and automatic identification data collection solutions

125

R1 RCM Inc. (NasdaqGS:RCM)

8741 Management services

X

 

 

 

 

Provides revenue cycle management

126

RediShred Capital Corp. (TSXV:KUT)

7389 Business services

 

X

 

 

 

Provides onsite shredding services

127

Research Solutions, Inc. (OTCPK:RSSS)

7389 Business services

X

 

 

 

 

Provides on-demand access to scientific, technical, and medical (STM) information

128

Results-Based Outsourcing Inc.

7374 Data processing and preparation

X

 

 

 

 

Operates as a consulting company for the small business enterprise market

129

Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)

7389 Business services

 

X

 

 

 

Sells industrial equipment and other assets

130

root9B Holdings, Inc. (OTCPK:RTNB)

8742 Management consulting services

X

 

 

 

 

Provides cybersecurity and business advisory services

131

Science Applications International Corporation (NYSE:SAIC)

7373 Computer integrated systems design

 

X

 

 

 

Provides technical, engineering, and enterprise information technology (IT) service to the government

132

Select Interior Concepts, Inc. (NasdaqCM:SIC)

7389 Business services

 

X

 

 

 

Installs and distributes interior building products

133

ServiceSource International, Inc. (NasdaqGS:SREV)

-

 

X

 

 

 

Operates as a digital customer journey experience company

134

Sotheby's (NYSE:BID)

7389 Business services

X

 

 

 

 

Auctioneer

135

SPAR Group, Inc. (NasdaqCM:SGRP)

7389 Business services

X

 

 

 

 

Provides merchandising and marketing services

136

Spindle, Inc. (OTCPK:SPDL)

7374 Data processing and preparation

 

X

 

 

 

Provides merchant and consumer-facing commerce solutions

137

StarTek, Inc.

7389 Business services

X

 

 

 

 

Duplicate

138

StarTek, Inc. (NYSE:SRT)

7389 Business services

X

 

 

 

 

Provides business process outsourcing services

139

Steel Connect, Inc. (NasdaqGS:STCN)

7374 Data processing and preparation

X

 

 

 

 

Provides supply chain and logistics services

140

STWC Holdings, Inc. (OTCPK:STWC)

7389 Business services

X

 

 

 

 

Provides fulfillment services to medical and retail stores

141

Switch, Inc. (NYSE:SWCH)

-

X

 

 

 

 

Provides colocation space and related services

142

Sykes Enterprises, Incorporated (NasdaqGS:SYKE)

7374 Data processing and preparation

X

 

 

 

 

Provides outsourced customer contact management solutions

143

Sylogist Ltd. (TSXV:SYZ)

7373 Computer integrated systems design

 

X

 

 

 

Provides enterprise resource planning (ERP) solutions

144

Sysorex, Inc. (OTCPK:SYSX)

-

 

X

 

 

 

Provides information technology (IT) and telecommunications solutions and services

145

Target Capital Inc. (TSXV:TCI)

8741 Management services

 

X

 

 

 

A private equity and venture capital firm

146

The Caldwell Partners International Inc. (TSX:CWL)

7361 Employment agencies

X

 

 

 

 

Provides executive search consulting services

147

The RMR Group Inc. (NasdaqCM:RMR)

8741 Management services

X

 

 

 

 

Provides business and property management services

148

Total System Services, Inc. (NYSE:TSS)

7389 Business services

X

 

 

 

 

Provides payment processing services

149

TriNet Group, Inc. (NYSE:TNET)

7374 Data processing and preparation

X

 

 

 

 

Provides human resources solutions

150

TSR, Inc. (NasdaqCM:TSRI)

7371 Computer programming services

X

 

 

 

 

Provides contract computer programming services

151

TSS, Inc. (OTCPK:TSSI)

8741 Management services

X

 

 

 

 

Provides services for the planning, design, development, and maintenance of mission-critical facilities and information infrastructure

152

TTEC Holdings, Inc. (NasdaqGS:TTEC)

7389 Business services

 

X

 

 

 

Designs and provides customer experience solutions

153

tTech Limited (JMSE:TTECH)

-

 

 

 

X

 

Provides information technology (IT) outsourcing services to businesses in Jamaica

154

TurnKey Capital, Inc. (OTCPK:TKCI)

-

X

 

 

 

 

Markets bundled accounting and computer/IT services

155

Unisys Corporation (NYSE:UIS)

7373 Computer integrated systems design

X

 

 

 

 

Provides cloud and infrastructure services

156

Valuesetters, Inc. (OTCPK:VSTR)

-

 

X

 

 

 

Provides consulting services, subscription services, advertising, and digital goods

157

Vegalab, Inc. (OTCPK:VEGL)

7389 Business services

 

X

 

 

 

Engages in the citrus packing business

158

Wall Street Media Co., Inc. (OTCPK:WSCO)

8742 Management consulting services

X

 

 

 

 

Provides consulting and management services

159

Western Pacific Trust Company (TSXV:WP)

7389 Business services

 

X

 

 

 

A non-deposit-taking independent trust company

160

WEX Inc. (NYSE:WEX)

7374 Data processing and preparation

 

X

 

 

 

Provides corporate card payment solutions

161

WidePoint Corporation (AMEX:WYY)

-

 

X

 

 

 

Provides information technology (IT) based products, services, and solutions

162

Wizard Entertainment, Inc. (OTCPK:WIZD)

7389 Business services

 

X

 

 

 

Produces pop culture live multimedia conventions

163

Worldpay, Inc. (NYSE:WP)

7374 Data processing and preparation

 

X

 

 

 

Provides electronic payment processing services


Appendix 12: IT Services Selected Comparables' Business Description

Cognizant Technology Solutions Corporation

FY December 31

2018

2017

2016

Average

Net Sales

16,125.0

14,810.0

13,487.0

14,807.3

Cost Of Goods Sold

9,838.0

9,152.0

8,108.0

9,032.7

Gross Profit

6,287.0

5,658.0

5,379.0

5,774.7

Operating Expenses

3,451.0

3,069.0

3,063.0

3,194.3

Operating Income

2,836.0

2,589.0

2,316.0

2,580.3

Profit Level Indicator: ROTC

21.3%

21.2%

20.7%

21.1%

In USD Millions

 

 

 

 

CIQ Business Description:

Cognizant Technology Solutions Corporation provides information technology (IT), consulting, and business process services worldwide. The company operates through four segments: Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other. Its consulting and technology services include IT strategy consulting, program management consulting, operations improvement consulting, strategy consulting, and business consulting services; and application design and development, systems integration, enterprise resource planning, and customer relationship management implementation services. The company also offers enterprise information management services, such as strategic, advisory, and management consulting; enterprise data management; descriptive analytics/business intelligence; strategic corporate performance management; and packaged analytics services, as well as big data services that assist clients in managing and deriving actionable insights. In addition, it provides application testing services; and develops, licenses, implements, and supports proprietary and third-party software products, as well as offers digital technologies services. Further, the company offers outsourcing services, such as application maintenance services; IT infrastructure services; and business process services, including clinical data management, pharmacovigilance, equity research support, commercial operations, and order management. It serves various industries, including banking and insurance; healthcare and life sciences; manufacturing and logistics; retail, travel, and hospitality; consumer goods; communications; information, media, and entertainment; and technology. The company markets and sells services through its professional staff, senior management, and direct sales personnel. Cognizant Technology Solutions Corporation was founded in 1998 and is headquartered in Teaneck, New Jersey.


Genpact Limited

FY December 31

2018

2017

2016

Average

Net Sales

3,000.8

2,736.9

2,570.8

2,769.5

Cost Of Goods Sold

1,921.8

1,681.4

1,554.3

1,719.2

Gross Profit

1,079.0

1,055.5

1,016.4

1,050.3

Operating Expenses

729.9

720.1

678.7

709.6

Operating Income

349.1

335.4

337.7

340.7

Profit Level Indicator: ROTC

13.2%

14.0%

15.1%

14.0%

In USD Millions

CIQ Business Description:

Genpact Limited provides business process outsourcing and information technology (IT) management services worldwide. The company offers finance and accounting services that include accounts payable services comprising document management, invoice processing, approval, and resolution management solutions; order to cash services, such as customer master data management, credit and contract management, fulfillment, billing, collections, and dispute management services; record to report services consisting of closing and reporting, treasury, tax, financial planning and analysis, and product cost accounting services; and enterprise risk and compliance services comprising risk, SOX advisory, enterprise risk management, internal audits, FCPA, and IT risk management services. It also provides analytics and research services; core industry operation services; business consulting and enterprise risk consulting services; transformation services; and supply chain and procurement services, including direct and indirect strategic sourcing, category management, spend analytics, procurement operations, master data management, and other procurement and supply chain advisory services. In addition, the company offers enterprise application services comprising business intelligence and data services, enterprise resource planning, quality assurance, and technology integration solutions; IT infrastructure management services, including end user computing, infrastructure management services, application production support, and database management services; and collections and customer services in the areas of consumer banking, business-to-business finance, and mortgage servicing. It serves banking and financial services, insurance, capital markets, consumer product goods, life sciences, infrastructure, manufacturing and services, healthcare, and high-tech industries. Genpact Limited was founded in 1997 and is based in Hamilton, Bermuda.


Information Services Group, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

275.8

269.6

216.5

253.9

Cost Of Goods Sold

159.9

156.6

132.4

149.6

Gross Profit

115.8

112.9

84.1

104.3

Operating Expenses

101.8

100.9

80.4

94.4

Operating Income

14.1

12.0

3.7

9.9

Profit Level Indicator: ROTC

5.4%

4.7%

1.7%

4.1%

In USD Millions

 

 

 

 

CIQ Business Description:

Information Services Group, Inc., together with its subsidiaries, provides technology insights, market intelligence, and advisory services in the Americas, Europe, and the Asia Pacific. It supports private and public-sector organizations to transform and optimize their operational environments through research, benchmarking, consulting, and managed services with a focus on information technology, business process transformation, program management services, and enterprise resource planning. The company serves private sector clients operating in the financial services, telecommunications, healthcare and pharmaceuticals, manufacturing, transportation and travel, and energy and utilities industries; and public-sector customers comprising state and local governments, airport and transit authorities, and provincial government units. Information Services Group, Inc. was founded in 2006 and is headquartered in Stamford, Connecticut.


Mastech Digital, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

177.2

147.9

132.0

152.4

Cost Of Goods Sold

134.6

116.3

105.7

118.9

Gross Profit

42.5

31.6

26.3

33.5

Operating Expenses

32.4

25.5

21.0

26.3

Operating Income

10.2

6.1

5.3

7.2

Profit Level Indicator: ROTC

6.1%

4.3%

4.2%

4.9%

In USD Millions

 

 

 

CIQ Business Description:

Mastech Digital, Inc. provides information technology (IT) staffing services to large and medium-sized organizations in the United States. It offers a range of IT staffing services in the areas of business intelligence/data warehousing; Web services; service-oriented architecture; enterprise resource planning and customer resource management; mobile applications; and e-business solutions. The company provides IT services for various industry verticals, including automotive, consumer products, education, financial services, government, healthcare, manufacturing, retail, technology, telecommunications, transportation, and utilities. It has strategic relationships with Salesforce.com, Oracle, and Accenture. Mastech Holdings, Inc. was founded in 1986 and is headquartered in Pittsburgh, Pennsylvania.


Perficient, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

498.4

485.3

487.0

490.2

Cost Of Goods Sold

319.8

323.7

335.7

326.4

Gross Profit

178.5

161.5

151.3

163.8

Operating Expenses

138.9

127.9

119.5

128.8

Operating Income

39.6

33.6

31.8

35.0

Profit Level Indicator: ROTC

8.6%

7.4%

7.0%

7.7%

In USD Millions

 

 

 

 

CIQ Business Description:

Perficient, Inc. provides information technology and management consulting services in the United States. The company designs, builds, and delivers solutions using middleware software products developed by third-party vendors. Its solutions include big data and analytics; technology platform implementation services, including application server selection, architecture planning, installation and configuration, clustering for availability, performance assessment and issue remediation, security services, and technology migrations; and enterprise content management solutions. The company also offers portals and collaboration solutions that include searchable data systems, collaborative systems for process improvement, transaction processing, unified and extended reporting, commerce, content management, and other services; and cloud services comprising architecture, business value and health checks assessments, strategy and road maps, and vendor evaluation and selection services. In addition, it provides enterprise social solutions consisting of ideation and crowdsourcing, mobile apps, employee onboarding, partner and vendor collaboration, user and customer support, expert location/Q&A, and others; and digital marketing services, such as search engine marketing, user experience and design, and conversion rate optimization. Further, the company provides custom applications; business integration; business process management; and customer relationship management solutions. It serves the healthcare, including pharma and life sciences; financial services that include banking and insurance; retail and consumer goods; automotive and transport products; electronics and computer hardware; telecommunications; manufacturing; energy and utilities; business services, and leisure; media and entertainment; and other markets. Perficient Inc. was founded in 1997 and is based in St. Louis, Missouri.

The Hackett Group, Inc.

FY December 31

2018

2017

2016

Average

Net Sales

264.5

255.1

252.1

257.3

Cost Of Goods Sold

163.4

157.8

157.3

159.5

Gross Profit

101.1

97.4

94.8

97.8

Operating Expenses

64.1

62.9

60.1

62.4

Operating Income

37.0

34.5

34.7

35.4

Profit Level Indicator: ROTC

16.2%

15.6%

16.0%

16.0%

In USD Millions

 

 

 

CIQ Business Description:

The Hackett Group, Inc. operates as a strategic advisory and technology consulting firm primarily in the United States and Western Europe. The company offers executive advisory programs, benchmarking, business transformation, and technology consulting services with corresponding offshore support. Its executive advisory programs include advisor inquiry, an inquiry service used by clients for access to fact-based advice on proven approaches and methods; best practice research, a research that provides insights into the proven approaches; peer interaction comprising member-led Webcasts, annual best practice conferences, annual member forums, membership performance surveys, and client-submitted content; best practice accelerators that provide Web based access to best practices, customized software configuration tools, and best practice process flows; and best practice intelligence center, an online searchable repository of best practices, performance metrics, conference presentations, and associated research. The company's benchmarking services conduct studies in the areas of selling, general and administrative, finance, human resources, information technology, procurement, enterprise performance management, shared service centers, and working capital management. These services are used by clients to establish priorities, generate organizational consensus, align compensation to establish performance goals, and develop the required business case for business and technology investments. Its business transformation programs help clients to develop coordinated strategy for achieving performance improvements across the enterprise; and enterprise resource planning solutions professionals help clients choose and deploy the software applications that best meet their needs and objectives. The company was formerly known as Answerthink, Inc. and changed its name to The Hackett Group, Inc. in 2008. The Hackett Group, Inc. was founded in 1991 and is headquartered in Miami, Florida.


Virtusa Corporation

FY March 31

2018

2017

2016

Average

Net Sales

1,247.9

1,020.7

858.7

1,042.4

Cost Of Goods Sold

884.7

725.4

621.0

743.7

Gross Profit

363.2

295.2

237.8

298.7

Operating Expenses

293.0

248.9

219.5

253.8

Operating Income

70.2

46.3

18.3

44.9

Profit Level Indicator: ROTC

6.0%

4.8%

2.2%

4.5%

In USD Millions

 

 

 

 

CIQ Business Description:

Virtusa Corporation operates as an information technology (IT) services company. It offers business and IT consulting services comprising application inventory and portfolio assessment, business/technology alignment analysis, business process optimization, and quality assurance process consulting; accelerated solution design, enterprise architecture analysis, technology roadmaps, product evaluation and selection, and business process analysis and design; and program governance and change management, program management planning, and complex program management. The company also provides technology implementation services, such as application development, package implementation and integration, software product engineering, application maintenance and support, business process management, CRM and SAP implementations, customer experience and content management, enterprise mobility services, cloud computing, and social media solutions; systems consolidation and rationalization, technology migration and porting, and Web-enablement of legacy applications; data management, business intelligence, reporting and decision support, master data management, data integration, and big data analytics; and software quality assurance and managed testing services. In addition, it offers application outsourcing services, such as the production support, maintenance and enhancement of custom-built and package-based applications, and ongoing software engineering; systems and database administration, and monitoring; outsourcing of quality assurance planning; and preparation and execution of test cases, scripts, and data. Virtusa Corporation provides its services to communications and technology; banking, financial services, and insurance; and media and information industries worldwide. The company was formerly known as eRunway, Inc. and changed its name to Virtusa Corporation in April 2002. Virtusa Corporation was founded in 1996 and is headquartered in Westborough, Massachusetts.


Wistron Information Technology & Services Corporation

FY December 31

2018

2017

2016

Average

Net Sales

129.2

93.9

83.7

102.2

Cost Of Goods Sold

98.8

76.0

68.3

81.0

Gross Profit

30.4

17.9

15.4

21.2

Operating Expenses

23.6

14.8

14.1

17.5

Operating Income

6.8

3.1

1.2

3.7

Profit Level Indicator: ROTC

5.5%

3.4%

1.5%

3.8%

In USD Millions

 

 

 

CIQ Business Description:

Wistron Information Technology & Services Corporation operates as an information technology (IT) service provider worldwide. It provides technical consulting services, such as product and application development, testing and validation, enterprise resource planning (ERP), modernization, and professional IT staffing and augmentation services; IT outsourcing services, including development center, operation maintenance, and service desk and call center services; and product globalization services comprising software design, development, and translation services, as well as post-production services consisting of testing and DTP. The company also offers business process outsourcing services, such as electronic data processing, which includes stock updates applied to inventory, banking transactions applied to account and customer master files, and booking and ticketing transactions for an airline's reservation systems; and utility company service billing for the use of gas, electricity, or water, as well as financial support services that enable its customers to offload credit card processing and general application functions. Further, it provides cloud service, mobile, mobile payment, ERP, and SmartRobot solutions. Additionally, the company offers data warehousing/big data implementation and consulting, and Internet advertising data analysis services; application management services; and IT operation and maintenance management services. The company serves banking, insurance, telecom, automobile, healthcare, and retail sectors. Wistron Information Technology & Services Corporation was founded in 1992 and is based in Irvine, California.

Appendix 13: Transfer Pricing Guidelines, Regulations and Legislation

Most developed nations have laws, regulations and legislation governing the pricing of intercompany transactions. Tangible property, intangible property, services and financial transactions (e.g., loans, guarantees) between related or controlled parties must occur at “arm’s length.”

The paragraphs below present an overview of key transfer pricing concepts defined in the OECD Guidelines, the U.S. Regulations, and the Canadian Legislation.

OECD Transfer Pricing Guidelines

Arm’s Length Principle

According to the OECD Guidelines, services provided, goods sold, or intangible assets used by a controlled party must be priced on an “arm’s length” basis, or as if the related enterprises to the transaction were dealing with each other as independent or unrelated parties. A controlled transaction meets the arm's length standard as defined under the U.S. Regulations “…if the results of the transaction are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances (arm's length result).”

Similarly, the OECD Guidelines state:

The arm’s length principle provides the closest approximation of the workings of the open market in cases where goods and services are transferred between associated enterprises...This reflects the economic realities of the controlled taxpayer's particular facts and circumstances and adopts as a benchmark the normal operation of the market.

As amended, the OECD Guidelines state:

“The selection of a transfer pricing method always aims at finding the most appropriate method for a particular case. For this purpose, the selection process should take account of the respective strengths and weaknesses of the OECD recognized methods; the appropriateness of the method considered in view of the nature of the controlled transaction, determined in particular through a functional analysis; the availability of reliable information (in particular on uncontrolled comparables) needed to apply the selected method and/or other methods; and the degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments that may be needed to eliminate material differences between them. No one method is suitable in every possible situation, nor is it necessary to prove that a particular method is not suitable under the circumstances.”

Determining Comparability

When evaluating the comparability of an uncontrolled transaction to a controlled transaction, all the factors affecting prices or profits must be considered. As defined in the US Regulations, these factors include functions, contractual terms, risks, economic conditions, and property (e.g., embedded intangibles) or services involved in the transaction. The OECD guidelines also cite the above factors and add the additional comparability factor of the business strategies pursued by the parties in relation to the controlled transaction.

Under the OECD Guidelines and the U.S. Regulations, an uncontrolled transaction need not be identical to the controlled transaction to be considered comparable. However, it should be sufficiently similar so that it provides a reliable measure of an arm's length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results.

The OECD Guidelines define methods appropriate for intercompany transactions. The OECD Guidelines do not require taxpayers to perform a best method analysis as required under the U.S. Regulations. Rather, Section 2.2 of the OECD Guidelines discusses the objective of identifying the most appropriate method under the circumstances. Methods defined under the OECD Guidelines are listed below:

Transactional methods:

o CUP Method

o RPM

o CP Method

Profits based methods:

o TNMM

o PSM

U.S. Regulations

Section 482 of the U.S. Internal Revenue Code and its corresponding U.S. Treasury Regulations under Section 1.482 provide guidance in evaluating the arm’s length nature of related party transactions. Below, we describe the best method rule and the methods applicable to the Company’s controlled transactions indicated in the U.S. Regulations.

Best Method Rule

The best method rule in the U.S. Regulations requires that the arm’s length result of controlled transactions be determined under the method that, given the facts and circumstances, provides the most reliable measure of an arm’s length result. The application of the best method generally establishes an arm’s length range of prices or financial returns with which to test the controlled transactions. In determining the best method, the U.S. Regulations direct taxpayers to consider:

The degree of comparability between the controlled transaction (or taxpayer) and any uncontrolled comparables; and

The quality of the data and assumptions used in the analysis.

The U.S. Regulations specify several methods for evaluating whether a controlled transaction meets the arm’s-length standard. Under the “best method rule,” one must use “the method that, under the facts and circumstances, provides the most reliable measure of an arm’s-length result.” There is no priority of methods and, as long as a specified method is the most reliable, it may be used “without establishing the inapplicability of another method.” When selecting a method of analysis, the two most important factors to consider are the degree of comparability between the controlled and uncontrolled transactions, and the quality of the data and assumptions used. In circumstances where two or more methods could be used, and where those methods produce inconsistent results, then it may be relevant to consider whether the results obtained under either of the competing methods are consistent with those that would have been obtained under another method.

U.S. Transfer Pricing Regulations for Services

The methods relevant to the Subject Transactions under the U.S. Regulations are established in Treas. Reg. § 1.482-9, which describes methods to determine taxable income in connection with controlled services transactions. There are seven methods defined in this section.

SCM

Transactional methods:

o CUSP Method

o GSM Method

o CSP Method

Transactional methods all typically require reliable data on transactions between the taxpayer and third parties (uncontrolled transactions) that are very similar or identical to the transactions between the taxpayer and the related party (the controlled transactions).

“Profits based” methods:

o CPM

o PSM

Profits based approaches consider the overall profitability of one or both parties involved in the controlled transaction, rather than looking at specific prices or margins as is the case with a transactional approach.

Unspecified Methods: Unspecified methods not specifically described in the US Regulations are generally only applied if they provide a more reliable result than a specified method.

The SCM, the transactional methods, and the profits based methods are discussed below.

Services Cost Method

The SCM is an elective method that evaluates the arm’s length nature of a services transaction by reference to the total costs providing the service without a markup. For a service to qualify for the SCM, a taxpayer must reasonably conclude using its business judgment that the service (i) does not contribute to the key competitive advantages, core capabilities, or fundamental risks of success or failure in one or more trades or businesses of the controlled group (“Core Services”); and (ii) is not a specifically excluded service under the Services Regulations.

The following activities are specifically excluded from SCM eligibility:

Manufacturing;

Production;

Extraction, exploration, or processing of natural resources;

Construction;

Reselling, distribution, acting as a sales or purchasing agent, or acting under a commission or other similar arrangement;

Research, development, or experimentation;

Engineering or scientific;

Financial transactions, including guarantees; and

Insurance and reinsurance.

If the service is not excluded, the service must be either (i) a “specified covered service” or (ii) a “low margin covered service” to apply the SCM. The “specified covered service” category includes 101 types of support services defined in Rev. Proc. 2007-13 that are common across industries and that generally do not involve a significant arm’s-length markup. The listed services are typically clerical or administrative in nature, and do not include services that may be considered executive or managerial. If a service is not a “specified covered service,” it may still qualify for the SCM if it is a “low margin covered service.” A “low margin covered service” must have a median comparable markup on total services costs of less than or equal to seven percent.

If applying the SCM, total services costs, i.e., all costs of rendering the controlled transactions, need to be included in the cost base to be allocated. Total services costs include all costs in cash or in kind (including stock-based compensation) that are directly identified with or can be reasonably allocated to the controlled transactions.

As previously mentioned, total services costs do not include interest expense, foreign income taxes, or domestic income taxes. Any reasonable method may be used to allocate and apportion costs related to the controlled transactions to the recipients. Accordingly, those controlled services transactions that meet the eligibility requirements for the SCM may be compensated by reference to total services costs, as discussed above, with no markup. If the eligibility requirements are met and the taxpayer elects to use the SCM, then the SCM will be considered the best method.

For a service to qualify for the SCM, the following requirements must be met:

The business judgment rule, whereby the taxpayer can conclude that the service provided is not a Core Service;

The service must not be on the list of excluded services;

The Company must adhere to the book and records requirements; and

The service must be either a “specified covered service” as specified by revenue procedure or a “low margin covered service” as discussed below.

Comparable Uncontrolled Services Price Method

The CUSP method evaluates whether the amount charged in a controlled services transaction is arm’s length by reference to the amount charged in a comparable uncontrolled services transaction. Comparable services may be between two third parties (i.e., external comparables) or between one of the related parties and a third party (i.e., internal comparables). The CUSP method is generally the most reliable measure of arm’s length results if transactions are identical or if only minor, readily quantifiable differences exist.

The CUSP method requires a high degree of comparability of services provided and activities performed. Comparability can be enhanced by making reliable adjustments to the comparable price. Adjustments to be considered include those for differences in the:

Quality of services rendered;

Duration or quantity of services rendered;

Intangibles used;

Collateral tangible transactions;

Risks borne; and

Realistically available alternatives.

Gross Services Margin Method

The GSM method evaluates whether the amount charged in a controlled service transaction is at arm’s length by reference to the gross services profit margin realized in comparable uncontrolled transactions that involve similar services. Under this method, the arm’s length price is measured by multiplying the appropriate gross services profit by the price of the relevant uncontrolled transaction. The GSM method is typically used when a controlled taxpayer performs services or functions as an intermediary or agent in connection with an uncontrolled transaction between a member of the controlled group and an uncontrolled taxpayer. This method requires detailed comparisons of functions performed, risks borne, and contractual terms of controlled and uncontrolled transactions. As a result, a higher degree of comparability is more likely to exist between controlled and uncontrolled services provided by the service provider (i.e., internal comparables). In the absence of comparable uncontrolled transactions involving the same service provider, an appropriate comparison may be derived from comparable uncontrolled transactions of other service providers (i.e., external comparables).

The GSM method is unlikely to lead to accurate results if there are significant differences in the:

Services or functions performed;

Contractual terms;

Risks borne;

Intangibles used; and

Cost structures or accounting methods.

Adjustments may be appropriate to account for differences between controlled and uncontrolled transactions in the:

Contractual terms;

Geographic markets;

Risks borne; and

The intangibles used.

Cost of Services Plus Method

The CSP method evaluates whether the amount charged in a controlled services transaction is arm’s length by reference to the gross services profit markup realized in comparable uncontrolled services transactions. The CSP method is ordinarily applied when the renderer provides the same or similar services to both controlled and uncontrolled parties. Under this method, the arm’s length price is determined by adding the appropriate gross profit to the controlled taxpayer’s comparable transactional cost. Comparable transactional cost is defined as the cost of providing the services that are taken into account as the basis for determining the gross services profit markup in comparable uncontrolled services transactions. The CSP method is most often used to assess the markup earned by a controlled party that provides similar services to both controlled and uncontrolled parties.

A service renderer’s gross services profit provides compensation for performing services related to the controlled services transactions, including a profit element for the service renderer’s investment of capital and assumption of risks. Thus, this method requires detailed comparisons of services provided, functions performed, and risks borne, and cost structures between controlled and uncontrolled transactions.

Comparability under the CSP method is less dependent on the close similarity between the services provided than under the CUSP method. However, substantial differences in the services may indicate significant functional differences between the controlled and uncontrolled taxpayers. Ordinarily, therefore, it would be expected that the controlled and uncontrolled transactions involve services of the same general type. Comparability is most likely found among controlled and uncontrolled services provided by the same company (i.e., internal comparables). In the absence of such transactions, an appropriate comparison may be derived from comparable uncontrolled transactions of other service providers (i.e., external comparables). The CSP method is less likely to be reliable if material differences exist between the controlled and uncontrolled transactions with respect to the:

Services rendered;

Functions performed;

Intangibles used;

Cost structure; and

Risks borne.

Adjustments may be appropriate to account for differences between controlled and uncontrolled transactions in the:

Complexity of services;

Duration or quantity of services;

Contractual terms;

Economic circumstances; and

Risks borne.

The degree of consistency in accounting practices between the controlled transaction and the uncontrolled comparables that materially affect the gross profit markup affects the reliability of the result. If differences in cost accounting practices would materially affect the gross services profit markup, the ability to make reliable adjustments for such differences would affect the reliability of the results obtained under this method. Further, reliability under this method depends on the extent to which the controlled and uncontrolled transactions reflect consistent reporting of comparable transactional costs.

Comparable Profits Method

The CPM evaluates whether the amount charged in a controlled transaction is at arm’s length based on objective measures of profitability (i.e., profit level indicators) derived from uncontrolled taxpayers that engage in similar business activities under similar circumstances. The CPM compares the profitability of a controlled company to that of unrelated comparable companies. The focus is not on the comparability of particular transactions themselves, but on the profit outcome of the transactions and the comparability of the function and risk profiles generating such profits. In most cases, the tested party should not use intangible property or unique assets that distinguish it from unrelated comparable companies. In the absence of usable data on comparable transactions between independent parties, the US Regulations allow the use of functional marketplace comparables to determine compliance with the arm’s length standard. This requires a search for functional comparables using the principles of the CPM to identify an arm’s length range.

The application of the CPM entails identifying companies that engage in similar activities, bear similar types and levels of risk and for which public data are available. The degree of comparability affects the reliability of the CPM analysis. Reliability may be adversely affected by varying cost structures, differences in business experience, or differences in management efficiency. However, the standards of comparability under the CPM are less stringent than those under the transactional methods (e.g., the CUSP method). Thus, less similarity among the services provided is required for reliable results than under the transactional methods.

Adjustments that may be appropriate include those for differences in the:

Accounting classifications;

Credit terms;

Inventory;

Currency risk; and

Business circumstances.

When a p p l y i n g th e CPM, t h e f irst s t e p is t o sel e c t t h e t es t ed p ar t y. In ge n e r al, t h e t es t e d p ar t y is a n e nt i t y i n volv e d i n t h e t r a n sa c t ion, or t h e m ost n arr o w ly i d e n t i f i ed b u si n e ss ac t ivi t y in w h i c h o n e of th e e n t i t ies e n gages in t h e c ont r o l led t r a n sa c t i o n . T h e t es t e d p a r t y s h o u l d n ot h old a n y u n i q u e i n t a n g i b les and s h o u l d b e t h e le a st c o mp lex e n t i t y i n th e c o nt r oll e d t r a n sa c t i o n . Finally, the entity whose financial data requires the fewest adjustments and is most reliable is generally tested.

The U.S. Regulations describe the PLIs that may be used in applying the CPM. They include two types of measures: the rate of return on capital employed and financial ratios. Other PLIs not specifically described in the U.S. Regulations may be employed if they provide the most reliable measure of an arm's length result within the meaning of the best method rule. Under this provision, any measure of profit based on objective measures of profitability derived from uncontrolled parties that engage in similar business activities under similar circumstances may be employed. Typically, one of the following PLIs is utilized:

ROCE: Operating Profit to Operating Assets Ratio

Berry Ratio: Gross Profit to SG&A Ratio

OM: Operating Profit to Sales Ratio

ROTC: Operating Profit to Total Cost Ratio

According to the U.S. Regulations, it may be appropriate to consider controlled and uncontrolled data from one or more years before or after the year under review. The appropriateness of using multiple year data depends upon the transfer pricing method being applied and the specific issue being addressed. Examples of situations that might warrant the use of multiple year data include the extent to which complete and accurate data are available for the taxable year under review, the existence of business cycles or the existence of product or intangible life cycles. When using multiple years of data, the average results of a controlled taxpayer over a multiple year period may be compared with the average results of uncontrolled transactions over the same period if such a comparison is deemed to reduce the effects of short-term variations unrelated to transfer pricing.

Profit Split Method

The PSM is ordinarily used in controlled service transactions involving a combination of routine and non-routine contributions by multiple controlled taxpayers and incorporates the profit split method rules in Treas. Reg. § 1.482-6. The PSM evaluates whether the allocation of the combined operating profit or loss attributable to one or more controlled transactions is arm’s length by reference to the relative value of each controlled taxpayer’s contribution to that combined operating profit or loss. The relative value of each controlled taxpayer’s contribution is determined in a manner that reflects the functions performed, risks assumed, and resources employed by such controlled taxpayer in the relevant business activity.

The Services Regulations include the following two specified profit split methods.

Comparable Profit Split Method (“CPSM”)

Under the CPSM, transfer prices are based on the division of combined operating profit between uncontrolled taxpayers with transactions and activities that are similar to those of the controlled taxpayers in the relevant business activity. Under this method, the uncontrolled parties’ percentage shares of the combined operating profit or loss is used to allocate the combined operating profit or loss of the relevant business activity between the related parties.

Residual Profit Split Method (“RPSM”)

The RPSM involves two steps. First, operating profit is allocated to each party in the controlled transactions to provide a market return for its routine contributions to the relevant business activity. Second, any residual profit is divided among the controlled taxpayers based on the relative value of their contributions of any non-routine contributions to the relevant business activity.

U.S. Transfer Pricing Regulations for Tangible Goods

The six methods specified for controlled sale of tangible goods are established in Treas. Reg. § 1.482-3. The specified methods defined in this section are:

1. CUP Method

2. RPM

3. CP Method

4. CPM

5. PSM

6. Unspecified Methods

Transactional methods applicable under Treas. Reg. § 1.482-3 are discussed below. The CPM, profit split methods, and unspecified methods were previously covered under the U.S. Services Regulations.

Comparable Uncontrolled Price Method

The CUP method evaluates the arm’s-length character of a controlled transaction by comparing the price charged in the controlled transaction to the amount charged in a comparable uncontrolled transaction. The CUP method is generally the most reliable measure of arm’s length results if transactions are identical or if only minor, readily quantifiable differences exist. The CUP method requires a high degree of comparability of products and functions. The U.S. Regulations state that this method may be applied if comparability between transactions can be achieved by a reasonable number of adjustments, which do not materially affect the comparable price.

Adjustments likely to be required include those for differences in:

Product quality;

Contractual terms;

Geographic market;

Embedded intangibles; and

Foreign currency risks.

Resale Price Method

The RPM evaluates whether the amount charged in a controlled transaction is arm’s length by reference to the gross margin realized in comparable uncontrolled transactions. The RPM is most often used for distributors that resell products without physically altering them or adding substantial value to them.

The RPM requires detailed comparisons of functions performed, risks borne and contractual terms of controlled and uncontrolled transactions. The RPM is unlikely to lead to accurate results if there are differences in:

Level of market;

Functions performed; or

Products.

A reasonable number of adjustments may be made to compensate for the lack of comparability between controlled and uncontrolled transactions in:

Inventory turnover;

Contractual terms;

Transport costs; and

Other measurable differences

Cost Plus Method

The CP method compares the gross profit markup realized in a controlled transaction with that earned in comparable uncontrolled transactions. Most often applied to manufacturers selling to related parties, the CP method compares the gross margins resulting from controlled and uncontrolled transactions. The CP method requires detailed comparisons on products produced, functions performed, risks borne, manufacturing complexity, cost structures and intangibles between controlled and uncontrolled transactions. The CP method is less likely to be reliable if material differences exist between the controlled and uncontrolled transactions with respect to:

Intangibles;

Cost structure;

Business experience;

Management efficiency;

Functions performed; and

Products.

To compensate for the lack of comparability between controlled and uncontrolled transactions, a reasonable number of adjustments may be made with respect to:

Inventory turnover;

Contractual terms;

Transport costs; and

Other measurable differences.

Canadian Legislation

Section 247(2) of the ITA outlines the Canadian transfer pricing requirements. The CRA, also referred to as “Revenue Canada,” is the principle tax administration agency in Canada and is responsible for the enforcement and administration of Canada’s tax laws. The CRA’s Information Circular 87-2R (“IC 87-2R”) and the CRA’s Transfer Pricing Memoranda (TPM-02 through TPM-12) are the main administrative regulations on transfer pricing. The circular was issued in 1987 and reissued in 1999 and is cross-referenced to the OECD Guidelines. Canada is a full member of the OECD and Canadian transfer pricing legislation and administrative guidelines are generally consistent with the OECD Guidelines.

While the ITA does not contain a precise definition of the term “arm’s length,” Canadian Legislation does state that a group of related parties should deal with each other as if they operate as separate entities. The CRA relies on the facts and circumstances of the case to determine a range, or the point in a range, that is the most reliable estimate of an arm's length price or allocation.

Transfer Pricing Methods

The CRA has indicated that it will rely on the OECD Guidelines on the use of transfer pricing methods, utilizing its hierarchical approach with a preference for traditional transaction methods over profit-based methods. The transfer pricing methods provided within the IC 87-2R are:

Traditional transaction methods,

o CUP Method;

o RPM; and

o CP Method;

Transactional profit methods;

o PSM; and

o TNMM.

These methods are comparable to the methods described in the U.S. Regulations.

The Canadian Legislation does not impose a hierarchy of transfer pricing methods, nor does it specifically mandate methods to meet the arm's length principle. However, the CRA has expressed the view that there is a natural hierarchy in the methods. The CRA believes that certain methods provide more reliable results than other methods, depending on the degree of comparability between controlled and uncontrolled transactions. It recognizes, however, that the reliability of any method is also affected by the availability of data and the degree of accuracy with which any necessary adjustments can be made to achieve comparability.

Documentation

Section 247(4) of the ITA describes the contemporaneous documentation that a taxpayer must prepare, which must "completely and accurately" describe:

The property or services to which the transaction relates. This must be done on a transaction-by-transaction basis.

The terms and conditions of the transaction and their relationship, if any, to the terms and conditions of each other transaction entered between the participants in the transaction.

The identity of the participants in the transaction and their relationship to each other at the start of the transaction.

For each transaction, the functions performed, the property used or contributed, and the risks assumed by each participant in the transaction.

The data and methods considered and the analysis performed to determine the transfer prices or the allocation of profits, losses, or contributions to costs, as the case may be, for the transaction. This implies that even methods that were considered and rejected must be stated for each transaction and the analysis performed must be fully documented.

The assumptions, strategies and policies, if any, that influenced the calculation of the transfer prices or the allocations of profits, losses or contributions to cost, as the case may be, for the transaction.

The CRA also expects the taxpayer's documentation to include:

The general organization and a description of the taxpayer's business;

The reasons for the selection of a particular transfer pricing method, including an explanation of why the selected method is more appropriate than any higher-ranking methods;

The projection of the expected benefits as they relate to the valuation of an intangible;

The scope of the search and criteria used to select comparables;

An analysis of the factors determining comparability, including any differences and the attempts made to make adjustments to take these into account; and

The assumptions, strategies, and policies as they relate to tangible property, intangible property and services being transferred.